MRV Engenharia e Participações S.A.'s (BVMF:MRVE3) 26% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

MRV Engenharia e Participações S.A. (BVMF:MRVE3) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 45% in that time.

In spite of the heavy fall in price, it's still not a stretch to say that MRV Engenharia e Participações' price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Consumer Durables industry in Brazil, where the median P/S ratio is around 0.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for MRV Engenharia e Participações

What Does MRV Engenharia e Participações' P/S Mean For Shareholders?

MRV Engenharia e Participações could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on MRV Engenharia e Participações.

How Is MRV Engenharia e Participações' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like MRV Engenharia e Participações' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. Revenue has also lifted 24% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 4.8% per year over the next three years. That's shaping up to be materially lower than the 10% per year growth forecast for the broader industry.

In light of this, it's curious that MRV Engenharia e Participações' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

With its share price dropping off a cliff, the P/S for MRV Engenharia e Participações looks to be in line with the rest of the Consumer Durables industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Given that MRV Engenharia e Participações' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for MRV Engenharia e Participações (of which 1 is potentially serious!) you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.