Sacyr, S.A.'s (BME:SCYR) Business Is Yet to Catch Up With Its Share Price

There wouldn't be many who think Sacyr, S.A.'s (BME:SCYR) price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S for the Construction industry in Spain is similar at about 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Sacyr

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

Sacyr hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Sacyr's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 8.3% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 1.4% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 1.4% per year as estimated by the ten analysts watching the company. With the industry predicted to deliver 4.3% growth per annum, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Sacyr'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. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Given that Sacyr's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. 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. A positive change is needed in order to justify the current price-to-sales ratio.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Sacyr that you should be aware of.

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.