Veste S.A. Estilo's (BVMF:VSTE3) 26% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

Unfortunately for some shareholders, the Veste S.A. Estilo (BVMF:VSTE3) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 46% share price drop.

Although its price has dipped substantially, there still wouldn't be many who think Veste Estilo's price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S in Brazil's Luxury industry is similar at about 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Veste Estilo

How Has Veste Estilo Performed Recently?

While the industry has experienced revenue growth lately, Veste Estilo's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor 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.

Want the full picture on analyst estimates for the company? Then our free report on Veste Estilo will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 1.9% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 37% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 10% during the coming year according to the one analyst following the company. With the industry predicted to deliver 31% growth, the company is positioned for a weaker revenue result.

With this information, we find it interesting that Veste Estilo is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Veste Estilo's P/S?

Veste Estilo's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Given that Veste Estilo's 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. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Veste Estilo with six simple checks on some of these key factors.

If you're unsure about the strength of Veste Estilo's 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.