Further Upside For Allpark Empreendimentos, Participações e Serviços S.A. (BVMF:ALPK3) Shares Could Introduce Price Risks After 26% Bounce

Allpark Empreendimentos, Participações e Serviços S.A. (BVMF:ALPK3) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 49%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Allpark Empreendimentos Participações e Serviços' P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Commercial Services industry in Brazil is also close to 0.8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Allpark Empreendimentos Participações e Serviços

How Allpark Empreendimentos Participações e Serviços Has Been Performing

Allpark Empreendimentos Participações e Serviços has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is moderate because investors think this respectable revenue growth might not be enough to outperform the broader industry in the near future. Those who are bullish on Allpark Empreendimentos Participações e Serviços will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Allpark Empreendimentos Participações e Serviços' earnings, revenue and cash flow.

How Is Allpark Empreendimentos Participações e Serviços' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Allpark Empreendimentos Participações e Serviços' is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. The strong recent performance means it was also able to grow revenue by 67% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 16% shows it's noticeably more attractive.

With this information, we find it interesting that Allpark Empreendimentos Participações e Serviços is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Final Word

Allpark Empreendimentos Participações e Serviços' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We didn't quite envision Allpark Empreendimentos Participações e Serviços' P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

You should always think about risks. Case in point, we've spotted 3 warning signs for Allpark Empreendimentos Participações e Serviços you should be aware of, and 1 of them is potentially serious.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.