Market Might Still Lack Some Conviction On Companhia Brasileira de Alumínio (BVMF:CBAV3) Even After 25% Share Price Boost

Despite an already strong run, Companhia Brasileira de Alumínio (BVMF:CBAV3) shares have been powering on, with a gain of 25% in the last thirty days. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.0% in the last twelve months.

Even after such a large jump in price, it's still not a stretch to say that Companhia Brasileira de Alumínio's price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the Metals and Mining industry in Brazil, seeing as it matches the P/S ratio of the wider industry. 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.

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View our latest analysis for Companhia Brasileira de Alumínio

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

Recent times have been advantageous for Companhia Brasileira de Alumínio as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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Is There Some Revenue Growth Forecasted For Companhia Brasileira de Alumínio?

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.

Retrospectively, the last year delivered a decent 14% gain to the company's revenues. Still, lamentably revenue has fallen 4.4% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 4.3% each year as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 1.5% per year growth forecast for the broader industry.

In light of this, it's curious that Companhia Brasileira de Alumínio's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now Companhia Brasileira de Alumínio's P/S is back within range of the industry median. 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. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Companhia Brasileira de Alumínio (including 1 which can't be ignored).

If these risks are making you reconsider your opinion on Companhia Brasileira de Alumínio, 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.