International Meal Company Alimentação S.A. (BVMF:MEAL3) Investors Are Less Pessimistic Than Expected

It's not a stretch to say that International Meal Company Alimentação S.A.'s (BVMF:MEAL3) price-to-sales (or "P/S") ratio of 0.3x seems quite "middle-of-the-road" for Hospitality companies in Brazil, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for International Meal Company Alimentação

What Does International Meal Company Alimentação's Recent Performance Look Like?

International Meal Company Alimentação could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on International Meal Company Alimentação will help you uncover what's on the horizon.

How Is International Meal Company Alimentação's Revenue Growth Trending?

In order to justify its P/S ratio, International Meal Company Alimentação would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 9.9%. The latest three year period has also seen an excellent 90% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 9.1% per annum as estimated by the one analyst watching the company. That's shaping up to be materially lower than the 34% per annum growth forecast for the broader industry.

In light of this, it's curious that International Meal Company Alimentação's P/S sits in line with the majority of other companies. 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.

The Final Word

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 International Meal Company Alimentação'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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 3 warning signs for International Meal Company Alimentação (2 are significant!) that we have uncovered.

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.