Unpleasant Surprises Could Be In Store For CEMEX, S.A.B. de C.V.'s (BMV:CEMEXCPO) Shares

It's not a stretch to say that CEMEX, S.A.B. de C.V.'s (BMV:CEMEXCPO) price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" for companies in the Basic Materials industry in Mexico, where the median P/S ratio is around 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for CEMEX. de

How Has CEMEX. de Performed Recently?

CEMEX. de has been doing a reasonable job lately as its revenue hasn't declined as much as most other companies. One possibility is that the P/S ratio is moderate because investors think this relatively better revenue performance might be about to evaporate. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value. But at the very least, you'd be hoping the company doesn't fall back into the pack if your plan is to pick up some stock while it's not in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on CEMEX. de.

Do Revenue Forecasts Match The P/S Ratio?

CEMEX. de'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.

Retrospectively, the last year delivered a frustrating 2.1% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 13% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 2.7% per year during the coming three years according to the analysts following the company. With the industry predicted to deliver 30% growth per year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that CEMEX. de's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On CEMEX. de's P/S

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

When you consider that CEMEX. de's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be 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.

You should always think about risks. Case in point, we've spotted 1 warning sign for CEMEX. de you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.