Investors Still Aren't Entirely Convinced By Cosan S.A.'s (BVMF:CSAN3) Revenues Despite 28% Price Jump

Cosan S.A. (BVMF:CSAN3) 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. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 44% in the last twelve months.

Although its price has surged higher, considering around half the companies operating in Brazil's Oil and Gas industry have price-to-sales ratios (or "P/S") above 0.8x, you may still consider Cosan as an solid investment opportunity with its 0.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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What Does Cosan's P/S Mean For Shareholders?

Recent times have been pleasing for Cosan as its revenue has risen in spite of the industry's average revenue going into reverse. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cosan.

How Is Cosan's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a worthy increase of 8.0%. The latest three year period has also seen an excellent 40% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 275% during the coming year according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.8%, which is noticeably less attractive.

In light of this, it's peculiar that Cosan's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

The latest share price surge wasn't enough to lift Cosan's P/S close to 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.

A look at Cosan's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Before you take the next step, you should know about the 3 warning signs for Cosan (1 is concerning!) that we have uncovered.

If you're unsure about the strength of Cosan's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.