Benign Growth For Diagnósticos da América S.A. (BVMF:DASA3) Underpins Stock's 30% Plummet

Unfortunately for some shareholders, the Diagnósticos da América S.A. (BVMF:DASA3) share price has dived 30% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 73% share price decline.

Following the heavy fall in price, considering around half the companies operating in Brazil's Healthcare industry have price-to-sales ratios (or "P/S") above 0.7x, you may consider Diagnósticos da América as an solid investment opportunity with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Diagnósticos da América

What Does Diagnósticos da América's Recent Performance Look Like?

Diagnósticos da América could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Diagnósticos da América.

How Is Diagnósticos da América's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Diagnósticos da América's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 6.8% last year. Pleasingly, revenue has also lifted 82% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 eight analysts covering the company suggest revenue should grow by 7.0% each year over the next three years. With the industry predicted to deliver 11% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Diagnósticos da América's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What Does Diagnósticos da América's P/S Mean For Investors?

Diagnósticos da América's recently weak share price has pulled its P/S back below other Healthcare companies. 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.

We've established that Diagnósticos da América maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 1 warning sign for Diagnósticos da América that we have uncovered.

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.

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