ATMA Participações S.A. (BVMF:ATMP3) Held Back By Insufficient Growth Even After Shares Climb 28%

ATMA Participações S.A. (BVMF:ATMP3) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 295% in the last year.

In spite of the firm bounce in price, ATMA Participações may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Professional Services industry in Brazil have P/S ratios greater than 1.3x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for ATMA Participações

How ATMA Participações Has Been Performing

For example, consider that ATMA Participações' financial performance has been poor lately as its revenue has been in decline. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on ATMA Participações will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For ATMA Participações?

The only time you'd be truly comfortable seeing a P/S as low as ATMA Participações' is when the company's growth is on track to lag the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 59%. The last three years don't look nice either as the company has shrunk revenue by 60% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 6.6% shows it's an unpleasant look.

With this in mind, we understand why ATMA Participações' P/S is lower than most of its industry peers. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On ATMA Participações' P/S

ATMA Participações' stock price has surged recently, but its but its P/S still remains modest. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's no surprise that ATMA Participações maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 4 warning signs we've spotted with ATMA Participações (including 1 which makes us a bit uncomfortable).

If you're unsure about the strength of ATMA Participações' 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.