Altur S.A. (BVB:ALT) Could Be Riskier Than It Looks

There wouldn't be many who think Altur S.A.'s (BVB:ALT) price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S for the Auto Components industry in Romania is similar at about 0.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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View our latest analysis for Altur

What Does Altur's P/S Mean For Shareholders?

For instance, Altur's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Altur, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The P/S?

Altur'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 4.7% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 16% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to shrink 8.4% in the next 12 months, the company's downward momentum is still superior based on recent medium-term annualised revenue results.

With this in consideration, we find it intriguing but explainable that Altur's P/S matches closely with its industry peers. Even if the company's recent growth rates continue outperforming the industry, shrinking revenues are unlikely to lead to a stable P/S long-term. It's conceivable that the P/S falls to lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

The Key Takeaway

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.

Even though revenue is has been declining, we've seen that Altur's P/S remains higher than the industry, partially attributable to the fact that the industry's revenue outlook is set to decline even further. When we see less revenue decline than the industry but a P/S that's only on par, we assume potential risks are what might be placing pressure on the P/S ratio. Perhaps investors have reservations about the company's ability to sustain this level of performance amidst the challenging industry conditions. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Having said that, be aware Altur is showing 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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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.