Revenues Tell The Story For TC Traders Club S.A. (BVMF:TRAD3)

When close to half the companies in the Capital Markets industry in Brazil have price-to-sales ratios (or "P/S") below 2x, you may consider TC Traders Club S.A. (BVMF:TRAD3) as a stock to potentially avoid with its 3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for TC Traders Club

What Does TC Traders Club's Recent Performance Look Like?

As an illustration, revenue has deteriorated at TC Traders Club over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Although there are no analyst estimates available for TC Traders Club, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is TC Traders Club's Revenue Growth Trending?

In order to justify its P/S ratio, TC Traders Club would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 10%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Comparing that to the industry, which is predicted to shrink 13% in the next 12 months, the company's positive momentum based on recent medium-term revenue results is a bright spot for the moment.

In light of this, it's understandable that TC Traders Club's P/S sits above the majority of other companies. Investors are willing to pay more for a stock they hope will buck the trend of the broader industry going backwards. However, its current revenue trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.

The Bottom Line On TC Traders Club's P/S

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As detailed previously, the strength of TC Traders Club's recent revenue trends over the medium-term relative to a declining industry is part of the reason why it trades at a higher P/S than its industry counterparts. It could be said that investors feel this revenue growth will continue into the future, justifying a higher P/S ratio. Our only concern is whether its revenue trajectory can keep outperforming under these tough industry conditions. Otherwise, it's hard to see the share price falling strongly in the near future if its revenue performance persists.

And what about other risks? Every company has them, and we've spotted 3 warning signs for TC Traders Club (of which 2 make us uncomfortable!) you should know about.

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).

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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.