Further Upside For SIMPAR S.A. (BVMF:SIMH3) Shares Could Introduce Price Risks After 36% Bounce

The SIMPAR S.A. (BVMF:SIMH3) share price has done very well over the last month, posting an excellent gain of 36%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 38% in the last twelve months.

In spite of the firm bounce in price, given about half the companies operating in Brazil's Transportation industry have price-to-sales ratios (or "P/S") above 1x, you may still consider SIMPAR as an attractive investment 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.

Check out our latest analysis for SIMPAR

What Does SIMPAR's P/S Mean For Shareholders?

Recent times have been advantageous for SIMPAR as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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 SIMPAR will help you uncover what's on the horizon.

How Is SIMPAR's Revenue Growth Trending?

SIMPAR's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 214% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 12% per year over the next three years. That's shaping up to be similar to the 13% each year growth forecast for the broader industry.

With this information, we find it odd that SIMPAR is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On SIMPAR's P/S

SIMPAR's stock price has surged recently, but its but its P/S still remains modest. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've seen that SIMPAR currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with SIMPAR, and understanding them should be part of your investment process.

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.