C&A Modas S.A. (BVMF:CEAB3) Soars 26% But It's A Story Of Risk Vs Reward

Despite an already strong run, C&A Modas S.A. (BVMF:CEAB3) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 148% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, there still wouldn't be many who think C&A Modas' price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in Brazil's Specialty Retail industry is similar at about 0.5x. 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.

Check out our latest analysis for C&A Modas

What Does C&A Modas' Recent Performance Look Like?

C&A Modas certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think C&A Modas' future stacks up against the industry? In that case, our free report is a great place to start.

How Is C&A Modas' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like C&A Modas' is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 14% last year. The latest three year period has also seen an excellent 49% 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.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 9.6% per annum over the next three years. With the industry only predicted to deliver 5.2% each year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that C&A Modas' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From C&A Modas' P/S?

C&A Modas' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Despite enticing revenue growth figures that outpace the industry, C&A Modas' P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Plus, you should also learn about this 1 warning sign we've spotted with C&A Modas.

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.