Sequoia Logística e Transportes S.A. (BVMF:SEQL3) Shares Fly 64% But Investors Aren't Buying For Growth

Sequoia Logística e Transportes S.A. (BVMF:SEQL3) shares have had a really impressive month, gaining 64% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 68% share price drop in the last twelve months.

Although its price has surged higher, considering around half the companies operating in Brazil's Logistics industry have price-to-sales ratios (or "P/S") above 0.7x, you may still consider Sequoia Logística e Transportes as an solid investment opportunity with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See our latest analysis for Sequoia Logística e Transportes

How Has Sequoia Logística e Transportes Performed Recently?

Revenue has risen at a steady rate over the last year for Sequoia Logística e Transportes, which is generally not a bad outcome. It might be that many expect the respectable revenue performance to degrade, which has repressed the P/S. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

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.

Is There Any Revenue Growth Forecasted For Sequoia Logística e Transportes?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Sequoia Logística e Transportes' to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 3.3%. However, this wasn't enough as the latest three year period has seen an unpleasant 49% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 7.9% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we are not surprised that Sequoia Logística e Transportes is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Final Word

Despite Sequoia Logística e Transportes' share price climbing recently, its P/S still lags most other companies. 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.

As we suspected, our examination of Sequoia Logística e Transportes revealed its shrinking revenue over the medium-term is contributing to its low P/S, given the industry is set to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Sequoia Logística e Transportes (of which 4 are concerning!) you should know about.

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.