Pinning Down Operadora de Sites Mexicanos, S.A.B. de C.V.'s (BMV:SITES1A-1) P/S Is Difficult Right Now

When close to half the companies in the Telecom industry in Mexico have price-to-sales ratios (or "P/S") below 0.9x, you may consider Operadora de Sites Mexicanos, S.A.B. de C.V. (BMV:SITES1A-1) as a stock to avoid entirely with its 3.9x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Operadora de Sites Mexicanos. de

How Has Operadora de Sites Mexicanos. de Performed Recently?

Recent times have been advantageous for Operadora de Sites Mexicanos. de as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

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Is There Enough Revenue Growth Forecasted For Operadora de Sites Mexicanos. de?

The only time you'd be truly comfortable seeing a P/S as steep as Operadora de Sites Mexicanos. de's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 9.5%. This was backed up an excellent period prior to see revenue up by 46% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 4.6% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 17%, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Operadora de Sites Mexicanos. de's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Operadora de Sites Mexicanos. de's P/S

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.

It comes as a surprise to see Operadora de Sites Mexicanos. de trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 2 warning signs for Operadora de Sites Mexicanos. de (1 doesn't sit too well with us!) that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.