Little Excitement Around Industrias Peñoles, S.A.B. de C.V.'s (BMV:PE&OLES) Revenues

Industrias Peñoles, S.A.B. de C.V.'s (BMV:PE&OLES) price-to-sales (or "P/S") ratio of 1.2x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Metals and Mining industry in Mexico have P/S ratios greater than 1.8x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Industrias Peñoles. de

What Does Industrias Peñoles. de's P/S Mean For Shareholders?

There hasn't been much to differentiate Industrias Peñoles. de's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

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

How Is Industrias Peñoles. de's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 12%. The latest three year period has also seen a 11% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue growth is heading into negative territory, declining 1.9% each year over the next three years. With the industry predicted to deliver 3.2% growth each year, that's a disappointing outcome.

In light of this, it's understandable that Industrias Peñoles. de's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

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.

As we suspected, our examination of Industrias Peñoles. de's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Industrias Peñoles. de (of which 1 is a bit concerning!) you should know about.

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.