Falabella S.A.'s (SNSE:FALABELLA) Price Is Out Of Tune With Revenues

With a median price-to-sales (or "P/S") ratio of close to 0.3x in the Multiline Retail industry in Chile, you could be forgiven for feeling indifferent about Falabella S.A.'s (SNSE:FALABELLA) P/S ratio of 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Falabella

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

Recent times haven't been great for Falabella as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Falabella's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Falabella's Revenue Growth Trending?

Falabella's 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.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.0% last year. The latest three year period has also seen a 6.9% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 5.8% per annum over the next three years. With the industry predicted to deliver 11% growth each year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Falabella's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at the analysts forecasts of Falabella's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 2 warning signs for Falabella (1 is a bit concerning!) that you should be aware of.

If you're unsure about the strength of Falabella's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.