Sequoia Logística e Transportes S.A. (BVMF:SEQL3) Might Not Be As Mispriced As It Looks After Plunging 30%

To the annoyance of some shareholders, Sequoia Logística e Transportes S.A. (BVMF:SEQL3) shares are down a considerable 30% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 82% loss during that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Sequoia Logística e Transportes' P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Logistics industry in Brazil is also close to 0.6x. 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 Sequoia Logística e Transportes

What Does Sequoia Logística e Transportes' P/S Mean For Shareholders?

Sequoia Logística e Transportes certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on Sequoia Logística e Transportes will help you uncover what's on the horizon.

How Is Sequoia Logística e Transportes' Revenue Growth Trending?

Sequoia Logística e Transportes' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. Pleasingly, revenue has also lifted 242% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue growth will be highly resilient over the next year growing by 13%. That would be an excellent outcome when the industry is expected to decline by 1.2%.

With this information, we find it odd that Sequoia Logística e Transportes is trading at a fairly similar P/S to the industry. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

The Final Word

With its share price dropping off a cliff, the P/S for Sequoia Logística e Transportes looks to be in line with the rest of the Logistics 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.

We've established that Sequoia Logística e Transportes currently trades on a lower than expected P/S since its growth forecasts are potentially beating a struggling industry. Given the glowing revenue forecasts, we can only assume potential risks are what might be capping the P/S ratio at its current levels. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader industry turmoil. It appears some are indeed anticipating revenue instability, because the company's current prospects should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Sequoia Logística e Transportes (1 shouldn't be ignored!) that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.