Risks Still Elevated At These Prices As Sequoia Logística e Transportes S.A. (BVMF:SEQL3) Shares Dive 51%

The Sequoia Logística e Transportes S.A. (BVMF:SEQL3) share price has fared very poorly over the last month, falling by a substantial 51%. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 88% loss during that time.

Although its price has dipped substantially, it's still not a stretch to say that Sequoia Logística e Transportes' price-to-sales (or "P/S") ratio of 0.6x right now seems quite "middle-of-the-road" compared to the Logistics industry in Brazil, seeing as it matches the P/S ratio of the wider industry. 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.

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Check out our latest analysis for Sequoia Logística e Transportes

What Does Sequoia Logística e Transportes' Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Sequoia Logística e Transportes has been doing very well. The P/S is probably moderate because investors think this strong revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Sequoia Logística e Transportes will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Sequoia Logística e Transportes, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Sequoia Logística e Transportes' is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 45% last year. Still, revenue has fallen 51% in total from three years ago, which is quite disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Comparing that to the industry, which is predicted to deliver 6.9% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

With this in mind, we find it worrying that Sequoia Logística e Transportes' P/S exceeds that of its industry peers. 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.

The Bottom Line On Sequoia Logística e Transportes' P/S

Sequoia Logística e Transportes' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

The fact that Sequoia Logística e Transportes currently trades at a P/S on par with the rest of the industry is surprising to us since its recent revenues have been in decline over the medium-term, all while the industry is set to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about these 5 warning signs we've spotted with Sequoia Logística e Transportes (including 4 which are a bit concerning).

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.