It's Down 26% But MPM Corpóreos S.A. (BVMF:ESPA3) Could Be Riskier Than It Looks

Unfortunately for some shareholders, the MPM Corpóreos S.A. (BVMF:ESPA3) share price has dived 26% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 43% in that time.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about MPM Corpóreos' P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Consumer Services industry in Brazil is also close to 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for MPM Corpóreos

How MPM Corpóreos Has Been Performing

MPM Corpóreos has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the expectation moving forward is that the revenue growth will track in line with the wider industry for the near term, which has kept the P/S subdued. Those who are bullish on MPM Corpóreos 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 MPM Corpóreos will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For MPM Corpóreos?

There's an inherent assumption that a company should be matching the industry for P/S ratios like MPM Corpóreos' to be considered reasonable.

Retrospectively, the last year delivered a decent 3.4% gain to the company's revenues. Pleasingly, revenue has also lifted 36% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 8.1%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that MPM Corpóreos is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From MPM Corpóreos' P/S?

MPM Corpóreos' 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.

To our surprise, MPM Corpóreos revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

You should always think about risks. Case in point, we've spotted 3 warning signs for MPM Corpóreos you should be aware of, and 2 of them don't sit too well with us.

If you're unsure about the strength of MPM Corpóreos' 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.