Brill Shoe Industries Ltd. (TLV:BRIL) Looks Inexpensive After Falling 28% But Perhaps Not Attractive Enough

The Brill Shoe Industries Ltd. (TLV:BRIL) share price has fared very poorly over the last month, falling by a substantial 28%. Looking at the bigger picture, even after this poor month the stock is up 60% in the last year.

After such a large drop in price, given about half the companies operating in Israel's Luxury industry have price-to-sales ratios (or "P/S") above 0.8x, you may consider Brill Shoe Industries as an attractive investment with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Brill Shoe Industries

How Brill Shoe Industries Has Been Performing

Revenue has risen at a steady rate over the last year for Brill Shoe Industries, which is generally not a bad outcome. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Brill Shoe Industries' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Brill Shoe Industries?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 4.5% last year. Revenue has also lifted 13% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 33% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Brill Shoe Industries is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Key Takeaway

The southerly movements of Brill Shoe Industries' shares means its P/S is now sitting at a pretty low level. 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.

Our examination of Brill Shoe Industries confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Before you settle on your opinion, we've discovered 3 warning signs for Brill Shoe Industries (2 can't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on Brill Shoe Industries, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.