A Piece Of The Puzzle Missing From Grupo Rotoplas S.A.B. de C.V.'s (BMV:AGUA) 26% Share Price Climb

Grupo Rotoplas S.A.B. de C.V. (BMV:AGUA) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 53% share price decline over the last year.

Although its price has surged higher, there still wouldn't be many who think Grupo Rotoplas. de's price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Mexico's Building industry is similar at about 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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What Does Grupo Rotoplas. de's P/S Mean For Shareholders?

Grupo Rotoplas. de could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

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Is There Some Revenue Growth Forecasted For Grupo Rotoplas. de?

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

Retrospectively, the last year delivered a frustrating 7.4% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 8.3% per annum during the coming three years according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 5.3% per annum, which is noticeably less attractive.

In light of this, it's curious that Grupo Rotoplas. de's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Grupo Rotoplas. de's P/S?

Grupo Rotoplas. de appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Despite enticing revenue growth figures that outpace the industry, Grupo Rotoplas. de's P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

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

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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.