Investors Aren't Entirely Convinced By StoneCo Ltd.'s (NASDAQ:STNE) Revenues

There wouldn't be many who think StoneCo Ltd.'s (NASDAQ:STNE) price-to-sales (or "P/S") ratio of 2.2x is worth a mention when the median P/S for the Diversified Financial industry in the United States is similar at about 2.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for StoneCo

How StoneCo Has Been Performing

Recent times have been advantageous for StoneCo as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

How Is StoneCo's Revenue Growth Trending?

In order to justify its P/S ratio, StoneCo would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. Pleasingly, revenue has also lifted 259% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 12% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 6.4% per year, which is noticeably less attractive.

With this in consideration, we find it intriguing that StoneCo's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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, StoneCo's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for StoneCo with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on StoneCo, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.