Optimistic Investors Push Zamp S.A. (BVMF:ZAMP3) Shares Up 28% But Growth Is Lacking

Zamp S.A. (BVMF:ZAMP3) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 11% over that time.

Although its price has surged higher, there still wouldn't be many who think Zamp's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when it essentially matches the median P/S in Brazil's Hospitality industry. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Zamp

How Zamp Has Been Performing

Recent times haven't been great for Zamp 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.

Want the full picture on analyst estimates for the company? Then our free report on Zamp will help you uncover what's on the horizon.

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

Zamp'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.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.4% last year. Pleasingly, revenue has also lifted 72% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 7.9% each year over the next three years. With the industry predicted to deliver 15% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's curious that Zamp's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

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

Zamp's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

When you consider that Zamp's 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.

Before you take the next step, you should know about the 2 warning signs for Zamp that we have uncovered.

If these risks are making you reconsider your opinion on Zamp, 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.