Companhia Brasileira de Alumínio's (BVMF:CBAV3) Shares Not Telling The Full Story

With a median price-to-sales (or "P/S") ratio of close to 0.5x in the Metals and Mining industry in Brazil, you could be forgiven for feeling indifferent about Companhia Brasileira de Alumínio's (BVMF:CBAV3) P/S ratio of 0.3x. 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.

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Check out our latest analysis for Companhia Brasileira de Alumínio

What Does Companhia Brasileira de Alumínio's P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Companhia Brasileira de Alumínio has been doing quite well of late. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. Those who are bullish on Companhia Brasileira de Alumínio will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

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

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

The only time you'd be comfortable seeing a P/S like Companhia Brasileira de Alumínio's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a worthy increase of 11%. However, this wasn't enough as the latest three year period has seen an unpleasant 3.0% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 7.4% each year as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 3.2% per year, which is noticeably less attractive.

With this information, we find it interesting that Companhia Brasileira de Alumínio is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does Companhia Brasileira de Alumínio's P/S Mean For Investors?

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.

Looking at Companhia Brasileira de Alumínio's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Companhia Brasileira de Alumínio you should know about.

If you're unsure about the strength of Companhia Brasileira de Alumínio'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.