Ambipar Participações e Empreendimentos S.A.'s (BVMF:AMBP3) 28% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

The Ambipar Participações e Empreendimentos S.A. (BVMF:AMBP3) share price has fared very poorly over the last month, falling by a substantial 28%. Looking at the bigger picture, even after this poor month the stock is up 96% in the last year.

In spite of the heavy fall in price, you could still be forgiven for thinking Ambipar Participações e Empreendimentos is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 2.9x, considering almost half the companies in Brazil's Commercial Services industry have P/S ratios below 0.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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View our latest analysis for Ambipar Participações e Empreendimentos

How Has Ambipar Participações e Empreendimentos Performed Recently?

With revenue growth that's superior to most other companies of late, Ambipar Participações e Empreendimentos has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Ambipar Participações e Empreendimentos' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Ambipar Participações e Empreendimentos' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Ambipar Participações e Empreendimentos' is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 39% gain to the company's top line. Pleasingly, revenue has also lifted 148% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 8.8% during the coming year according to the three analysts following the company. With the industry predicted to deliver 3.3% growth, that's a disappointing outcome.

With this information, we find it concerning that Ambipar Participações e Empreendimentos is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Key Takeaway

A significant share price dive has done very little to deflate Ambipar Participações e Empreendimentos' very lofty P/S. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Ambipar Participações e Empreendimentos' analyst forecasts revealed that its shrinking revenue outlook isn't drawing down its high P/S anywhere near as much as we would have predicted. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you take the next step, you should know about the 1 warning sign for Ambipar Participações e Empreendimentos that we have uncovered.

If you're unsure about the strength of Ambipar Participações e Empreendimentos' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.