Neogrid Participações S.A.'s (BVMF:NGRD3) Subdued P/S Might Signal An Opportunity

You may think that with a price-to-sales (or "P/S") ratio of 0.7x Neogrid Participações S.A. (BVMF:NGRD3) is definitely a stock worth checking out, seeing as almost half of all the Software companies in Brazil have P/S ratios greater than 3.1x and even P/S above 7x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Our free stock report includes 2 warning signs investors should be aware of before investing in Neogrid Participações. Read for free now.

View our latest analysis for Neogrid Participações

How Has Neogrid Participações Performed Recently?

With revenue growth that's inferior to most other companies of late, Neogrid Participações has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Neogrid Participações.

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

Neogrid Participações' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Still, the latest three year period was better as it's delivered a decent 12% overall rise in revenue. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 20% during the coming year according to the sole analyst following the company. With the industry only predicted to deliver 15%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Neogrid Participações' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Bottom Line On Neogrid Participações' P/S

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.

Neogrid Participações' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Neogrid Participações (of which 1 shouldn't be ignored!) you should know about.

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.