Investors Still Aren't Entirely Convinced By Construtora Tenda S.A.'s (BVMF:TEND3) Revenues Despite 26% Price Jump

Construtora Tenda S.A. (BVMF:TEND3) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 48% in the last year.

Although its price has surged higher, there still wouldn't be many who think Construtora Tenda's price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Brazil's Consumer Durables industry is similar at about 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Construtora Tenda

How Has Construtora Tenda Performed Recently?

With revenue growth that's inferior to most other companies of late, Construtora Tenda has been relatively sluggish. 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 Construtora Tenda's future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/S ratio, Construtora Tenda would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 15% last year. Revenue has also lifted 18% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 15% per year during the coming three years according to the ten analysts following the company. That's shaping up to be materially higher than the 11% per year growth forecast for the broader industry.

With this information, we find it interesting that Construtora Tenda is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Construtora Tenda's 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've established that Construtora Tenda currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for Construtora Tenda (1 makes us a bit uncomfortable!) that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.