Some Shareholders Feeling Restless Over BRF S.A.'s (BVMF:BRFS3) P/S Ratio

It's not a stretch to say that BRF S.A.'s (BVMF:BRFS3) price-to-sales (or "P/S") ratio of 0.8x seems quite "middle-of-the-road" for Food companies in Brazil, seeing as it matches the P/S ratio of the wider industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for BRF

How Has BRF Performed Recently?

BRF's revenue growth of late has been pretty similar to most other companies. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

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

How Is BRF's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like BRF's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 8.0% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 26% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 5.0% per annum over the next three years. That's shaping up to be materially lower than the 30% each year growth forecast for the broader industry.

With this information, we find it interesting that BRF 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. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at the analysts forecasts of BRF's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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. 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 should always think about risks. Case in point, we've spotted 2 warning signs for BRF you should be aware of, and 1 of them doesn't sit too well with us.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.