International Meal Company Alimentação S.A.'s (BVMF:MEAL3) Popularity With Investors Under Threat As Stock Sinks 27%

International Meal Company Alimentação S.A. (BVMF:MEAL3) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 24% in that time.

Although its price has dipped substantially, it's still not a stretch to say that International Meal Company Alimentação's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Hospitality industry in Brazil, where the median P/S ratio is around 0.3x. 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

How International Meal Company Alimentação Has Been Performing

With revenue growth that's inferior to most other companies of late, International Meal Company Alimentação has been relatively sluggish. 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.

What Are Revenue Growth Metrics Telling Us About The P/S?

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

Retrospectively, the last year delivered a decent 6.4% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 93% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 12% each year during the coming three years according to the only analyst following the company. With the industry predicted to deliver 15% growth per annum, the company is positioned for a weaker revenue result.

With this information, we find it interesting that International Meal Company Alimentação 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.

The Bottom Line On International Meal Company Alimentação's P/S

With its share price dropping off a cliff, the P/S for International Meal Company Alimentação looks to be in line with the rest of the Hospitality 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.

When you consider that International Meal Company Alimentação's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be 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. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

You need to take note of risks, for example - International Meal Company Alimentação has 2 warning signs (and 1 which is potentially serious) we think you should know about.

If these risks are making you reconsider your opinion on International Meal Company Alimentação, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.