There's Reason For Concern Over Syn Prop & Tech S.A.'s (BVMF:SYNE3) Massive 85% Price Jump

Syn Prop & Tech S.A. (BVMF:SYNE3) shareholders have had their patience rewarded with a 85% share price jump in the last month. The last month tops off a massive increase of 101% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Syn Prop & Tech's price-to-sales (or "P/S") ratio of 2.9x right now seems quite "middle-of-the-road" compared to the Real Estate industry in Brazil, where the median P/S ratio is around 2.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Syn Prop & Tech

How Has Syn Prop & Tech Performed Recently?

While the industry has experienced revenue growth lately, Syn Prop & Tech's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Syn Prop & Tech will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Syn Prop & Tech?

In order to justify its P/S ratio, Syn Prop & Tech would need to produce growth that's similar to the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 82%. This means it has also seen a slide in revenue over the longer-term as revenue is down 15% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue growth is heading into negative territory, declining 13% over the next year. That's not great when the rest of the industry is expected to grow by 17%.

With this information, we find it concerning that Syn Prop & Tech is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Key Takeaway

Syn Prop & Tech's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Our check of Syn Prop & Tech's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Syn Prop & Tech (at least 2 which are potentially serious), and understanding these should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.