IRB-Brasil Resseguros S.A.'s (BVMF:IRBR3) Price Is Right But Growth Is Lacking

IRB-Brasil Resseguros S.A.'s (BVMF:IRBR3) price-to-sales (or "P/S") ratio of 0.5x might make it look like a buy right now compared to the Insurance industry in Brazil, where around half of the companies have P/S ratios above 1.8x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for IRB-Brasil Resseguros

What Does IRB-Brasil Resseguros' Recent Performance Look Like?

While the industry has experienced revenue growth lately, IRB-Brasil Resseguros' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, IRB-Brasil Resseguros would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 44% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 54% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 4.1% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 14% per annum, which is noticeably more attractive.

With this information, we can see why IRB-Brasil Resseguros is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of IRB-Brasil Resseguros' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. 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.

Before you take the next step, you should know about the 1 warning sign for IRB-Brasil Resseguros that we have uncovered.

If these risks are making you reconsider your opinion on IRB-Brasil Resseguros, 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.