Pinning Down AntarChile S.A.'s (SNSE:ANTARCHILE) P/S Is Difficult Right Now

Simply Wall St · 05/13 10:10

With a median price-to-sales (or "P/S") ratio of close to 0.3x in the Industrials industry in Chile, you could be forgiven for feeling indifferent about AntarChile S.A.'s (SNSE:ANTARCHILE) P/S ratio of 0.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for AntarChile

SNSE:ANTARCHILE Price to Sales Ratio vs Industry May 13th 2024

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

AntarChile could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think AntarChile's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like AntarChile's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period has seen an excellent 62% overall rise in revenue, in spite of its uninspiring short-term performance. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Looking ahead now, revenue is anticipated to slump, contracting by 14% during the coming year according to the one analyst following the company. That's not great when the rest of the industry is expected to grow by 3.5%.

With this information, we find it concerning that AntarChile is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Key Takeaway

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.

Our check of AntarChile's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

Before you take the next step, you should know about the 4 warning signs for AntarChile (2 are significant!) that we have uncovered.

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