Getting In Cheap On Ouro Fino Saúde Animal Participações S.A. (BVMF:OFSA3) Is Unlikely

There wouldn't be many who think Ouro Fino Saúde Animal Participações S.A.'s (BVMF:OFSA3) price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S for the Pharmaceuticals industry in Brazil is similar at about 1.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Ouro Fino Saúde Animal Participações

What Does Ouro Fino Saúde Animal Participações' Recent Performance Look Like?

As an illustration, revenue has deteriorated at Ouro Fino Saúde Animal Participações over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Although there are no analyst estimates available for Ouro Fino Saúde Animal Participações, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Ouro Fino Saúde Animal Participações' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Ouro Fino Saúde Animal Participações' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 2.7%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 12% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 30% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Ouro Fino Saúde Animal Participações' P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Key Takeaway

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 Ouro Fino Saúde Animal Participações' average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Ouro Fino Saúde Animal Participações (1 is a bit concerning) 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.