Revenues Not Telling The Story For Marisa Lojas S.A. (BVMF:AMAR3) After Shares Rise 32%

Marisa Lojas S.A. (BVMF:AMAR3) shares have continued their recent momentum with a 32% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 37% over that time.

In spite of the firm bounce in price, there still wouldn't be many who think Marisa Lojas' price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Brazil's Specialty Retail industry is similar at about 0.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Marisa Lojas

How Has Marisa Lojas Performed Recently?

As an illustration, revenue has deteriorated at Marisa Lojas over the last year, which is not ideal at all. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Marisa Lojas' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Marisa Lojas would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 22% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 45% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 3.5% shows it's an unpleasant look.

With this information, we find it concerning that Marisa Lojas is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Marisa Lojas' P/S?

Marisa Lojas' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look at Marisa Lojas revealed its shrinking revenues over the medium-term haven't impacted the P/S as much as we anticipated, given the industry is set to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Plus, you should also learn about these 4 warning signs we've spotted with Marisa Lojas (including 3 which are concerning).

If you're unsure about the strength of Marisa Lojas' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.