Not Many Are Piling Into Companhia Brasileira de Alumínio (BVMF:CBAV3) Stock Yet As It Plummets 27%

The Companhia Brasileira de Alumínio (BVMF:CBAV3) share price has fared very poorly over the last month, falling by a substantial 27%. Longer-term shareholders would now have taken a real hit with the stock declining 7.6% in the last year.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Companhia Brasileira de Alumínio's P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Metals and Mining industry in Brazil is also close to 0.5x. 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.

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.

Keen to find out how analysts think Companhia Brasileira de Alumínio's future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/S ratio, Companhia Brasileira de Alumínio would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.4%. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 7.8% per annum during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 5.5% per annum growth forecast for the broader industry.

With this information, we find it interesting that Companhia Brasileira de Alumínio is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

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

Companhia Brasileira de Alumínio's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

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. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Before you settle on your opinion, we've discovered 3 warning signs for Companhia Brasileira de Alumínio that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.