Sacyr, S.A.'s (BME:SCYR) Business Is Trailing The Industry But Its Shares Aren't
It's not a stretch to say that Sacyr, S.A.'s (BME:SCYR) price-to-sales (or "P/S") ratio of 0.7x seems quite "middle-of-the-road" for Construction companies in Spain, seeing as it matches the P/S ratio of the wider industry. 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.
See our latest analysis for Sacyr
What Does Sacyr's Recent Performance Look Like?
With revenue growth that's inferior to most other companies of late, Sacyr has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sacyr.Do Revenue Forecasts Match The P/S Ratio?
The only time you'd be comfortable seeing a P/S like Sacyr's is when the company's growth is tracking the industry closely.
If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 14% drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.
Turning to the outlook, the next three years should generate growth of 2.2% each year as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 5.8% per year, which is noticeably more attractive.
In light of this, it's curious that Sacyr's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
What We Can Learn From Sacyr's P/S?
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.
When you consider that Sacyr's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.
It is also worth noting that we have found 2 warning signs for Sacyr (1 is significant!) that you need to take into consideration.
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.