What You Can Learn From 3R Petroleum Óleo e Gás S.A.'s (BVMF:RRRP3) P/S

When you see that almost half of the companies in the Oil and Gas industry in Brazil have price-to-sales ratios (or "P/S") below 1.5x, 3R Petroleum Óleo e Gás S.A. (BVMF:RRRP3) looks to be giving off some sell signals with its 3.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for 3R Petroleum Óleo e Gás

What Does 3R Petroleum Óleo e Gás' P/S Mean For Shareholders?

3R Petroleum Óleo e Gás certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on 3R Petroleum Óleo e Gás.

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

3R Petroleum Óleo e Gás' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 94%. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 192% during the coming year according to the eleven analysts following the company. That's shaping up to be materially higher than the 15% growth forecast for the broader industry.

In light of this, it's understandable that 3R Petroleum Óleo e Gás' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of 3R Petroleum Óleo e Gás' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for 3R Petroleum Óleo e Gás you should be aware of, and 2 of them are potentially serious.

If you're unsure about the strength of 3R Petroleum Óleo e Gás' 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.