Lacklustre Performance Is Driving Atenor SA's (EBR:ATEB) Low P/S

Simply Wall St · 10/18 04:23

With a price-to-sales (or "P/S") ratio of 0.9x Atenor SA (EBR:ATEB) may be sending very bullish signals at the moment, given that almost half of all the Real Estate companies in Belgium have P/S ratios greater than 4.9x and even P/S higher than 8x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Atenor

ps-multiple-vs-industry
ENXTBR:ATEB Price to Sales Ratio vs Industry October 18th 2024

How Atenor Has Been Performing

Recent times have been advantageous for Atenor as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

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

In order to justify its P/S ratio, Atenor would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company grew revenue by an impressive 243% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 2.3% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Shifting to the future, estimates from the two analysts covering the company suggest revenue growth is heading into negative territory, declining 26% over the next year. That's not great when the rest of the industry is expected to grow by 11%.

With this in consideration, we find it intriguing that Atenor's P/S is closely matching its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Atenor's P/S is on the lower end of the spectrum. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Atenor you should know about.

If you're unsure about the strength of Atenor's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.