Pinning Down Cogna Educação S.A.'s (BVMF:COGN3) P/S Is Difficult Right Now

There wouldn't be many who think Cogna Educação S.A.'s (BVMF:COGN3) price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S for the Consumer Services industry in Brazil is similar at about 0.6x. 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 Cogna Educação

What Does Cogna Educação's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Cogna Educação has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Keen to find out how analysts think Cogna Educação'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?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Cogna Educação's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. As a result, it also grew revenue by 22% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 7.8% per year during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 16% per annum, which is noticeably more attractive.

With this in mind, we find it intriguing that Cogna Educação's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

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.

Our look at the analysts forecasts of Cogna Educação's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Cogna Educação that you should be aware of.

If these risks are making you reconsider your opinion on Cogna Educação, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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