Diagnósticos da América S.A. (BVMF:DASA3) Looks Inexpensive But Perhaps Not Attractive Enough

When you see that almost half of the companies in the Healthcare industry in Brazil have price-to-sales ratios (or "P/S") above 1.1x, Diagnósticos da América S.A. (BVMF:DASA3) looks to be giving off some buy signals with its 0.6x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Diagnósticos da América

How Diagnósticos da América Has Been Performing

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.

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

Is There Any Revenue Growth Forecasted For Diagnósticos da América?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Diagnósticos da América's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 21%. Pleasingly, revenue has also lifted 182% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 9.8% per annum over the next three years. With the industry predicted to deliver 23% growth per year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Diagnósticos da América's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

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. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Diagnósticos da América (2 make us uncomfortable) you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.