CVC Brasil Operadora e Agência de Viagens S.A.'s (BVMF:CVCB3) 31% Share Price Surge Not Quite Adding Up

CVC Brasil Operadora e Agência de Viagens S.A. (BVMF:CVCB3) shareholders are no doubt pleased to see that the share price has bounced 31% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 35% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think CVC Brasil Operadora e Agência de Viagens' price-to-sales (or "P/S") ratio of 0.7x is worth a mention when the median P/S in Brazil's Hospitality industry is similar at about 0.9x. 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.

View our latest analysis for CVC Brasil Operadora e Agência de Viagens

What Does CVC Brasil Operadora e Agência de Viagens' Recent Performance Look Like?

Recent times have been advantageous for CVC Brasil Operadora e Agência de Viagens as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on CVC Brasil Operadora e Agência de Viagens will help you uncover what's on the horizon.

How Is CVC Brasil Operadora e Agência de Viagens' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like CVC Brasil Operadora e Agência de Viagens' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. Pleasingly, revenue has also lifted 128% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 4.5% each year during the coming three years according to the four analysts following the company. That's shaping up to be materially lower than the 16% each year growth forecast for the broader industry.

With this in mind, we find it intriguing that CVC Brasil Operadora e Agência de Viagens' P/S is closely matching its industry peers. 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 Does CVC Brasil Operadora e Agência de Viagens' P/S Mean For Investors?

Its shares have lifted substantially and now CVC Brasil Operadora e Agência de Viagens' P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

When you consider that CVC Brasil Operadora e Agência de Viagens' 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 1 warning sign for CVC Brasil Operadora e Agência de Viagens that you need to be mindful of.

If these risks are making you reconsider your opinion on CVC Brasil Operadora e Agência de Viagens, 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.