There's Reason For Concern Over PDG Realty S.A. Empreendimentos e Participações' (BVMF:PDGR3) Massive 34% Price Jump

PDG Realty S.A. Empreendimentos e Participações (BVMF:PDGR3) shareholders are no doubt pleased to see that the share price has bounced 34% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 97% share price drop in the last twelve months.

Although its price has surged higher, you could still be forgiven for feeling indifferent about PDG Realty Empreendimentos e Participações' P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Consumer Durables industry in Brazil is also close to 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.

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View our latest analysis for PDG Realty Empreendimentos e Participações

What Does PDG Realty Empreendimentos e Participações' Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, PDG Realty Empreendimentos e Participações has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on PDG Realty Empreendimentos e Participações will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, PDG Realty Empreendimentos e Participações would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 31% last year. Still, revenue has fallen 72% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 19% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that PDG Realty Empreendimentos e Participações' P/S sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

The Key Takeaway

PDG Realty Empreendimentos e Participações appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at PDG Realty Empreendimentos e Participações revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 5 warning signs for PDG Realty Empreendimentos e Participações that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.