Tecnisa S.A.'s (BVMF:TCSA3) 28% Price Boost Is Out Of Tune With Revenues

Tecnisa S.A. (BVMF:TCSA3) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 47% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Tecnisa's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in Brazil's Consumer Durables industry is similar at about 0.5x. 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.

Check out our latest analysis for Tecnisa

How Tecnisa Has Been Performing

Recent times haven't been great for Tecnisa as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Tecnisa.

How Is Tecnisa's Revenue Growth Trending?

Tecnisa's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. Pleasingly, revenue has also lifted 198% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 22% during the coming year according to the sole analyst following the company. That's not great when the rest of the industry is expected to grow by 17%.

With this information, we find it concerning that Tecnisa is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What We Can Learn From Tecnisa's P/S?

Tecnisa appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It appears that Tecnisa currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Tecnisa, and understanding these should be part of your investment process.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.