BRF S.A.'s (BVMF:BRFS3) Price In Tune With Revenues

It's not a stretch to say that BRF S.A.'s (BVMF:BRFS3) price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" for companies in the Food industry in Brazil, where the median P/S ratio is around 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Our free stock report includes 2 warning signs investors should be aware of before investing in BRF. Read for free now.

Check out our latest analysis for BRF

How Has BRF Performed Recently?

There hasn't been much to differentiate BRF's and the industry's revenue growth lately. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. Those who are bullish on BRF will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

Keen to find out how analysts think BRF's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 27% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 5.6% per year over the next three years. With the industry predicted to deliver 6.8% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's understandable that BRF's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On BRF's P/S

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.

A BRF's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Food industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Before you take the next step, you should know about the 2 warning signs for BRF (1 doesn't sit too well with us!) that we have uncovered.

If these risks are making you reconsider your opinion on BRF, 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.