Marfrig Global Foods S.A.'s (BVMF:MRFG3) P/S Is Still On The Mark Following 34% Share Price Bounce

Marfrig Global Foods S.A. (BVMF:MRFG3) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 89% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Marfrig Global Foods' price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Food industry in Brazil, where the median P/S ratio is around 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Marfrig Global Foods

What Does Marfrig Global Foods' Recent Performance Look Like?

Marfrig Global Foods' revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to show no drastic signs of changing, justifying the P/S being at current levels. Those who are bullish on Marfrig Global Foods 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 Marfrig Global Foods' 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?

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

If we review the last year of revenue growth, the company posted a worthy increase of 13%. The latest three year period has also seen an excellent 74% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 8.5% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 7.1% per annum, which is not materially different.

With this information, we can see why Marfrig Global Foods is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Its shares have lifted substantially and now Marfrig Global Foods' P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at Marfrig Global Foods' revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Marfrig Global Foods (1 doesn't sit too well with us!) that you need to be mindful of.

If these risks are making you reconsider your opinion on Marfrig Global Foods, 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.