Slammed 26% C&A Modas S.A. (BVMF:CEAB3) Screens Well Here But There Might Be A Catch

C&A Modas S.A. (BVMF:CEAB3) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Looking back over the past twelve months the stock has been a solid performer regardless, with a gain of 14%.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about C&A Modas' P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in Brazil is also close to 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.

Check out our latest analysis for C&A Modas

What Does C&A Modas' P/S Mean For Shareholders?

Recent times have been advantageous for C&A Modas 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 the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on C&A Modas will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For C&A Modas?

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.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. The strong recent performance means it was also able to grow revenue by 46% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 9.8% per annum over the next three years. That's shaping up to be materially higher than the 3.5% each year growth forecast for the broader industry.

In light of this, it's curious that C&A Modas' 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.

What Does C&A Modas' P/S Mean For Investors?

Following C&A Modas' share price tumble, its P/S is just clinging on to the industry median P/S. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that C&A Modas currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. 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. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 1 warning sign for C&A Modas that you need to take into consideration.

If these risks are making you reconsider your opinion on C&A Modas, 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.