Even With A 30% Surge, Cautious Investors Are Not Rewarding Lojas Quero-Quero S.A.'s (BVMF:LJQQ3) Performance Completely

Lojas Quero-Quero S.A. (BVMF:LJQQ3) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 26% in the last twelve months.

Even after such a large jump in price, it's still not a stretch to say that Lojas Quero-Quero's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in Brazil, where the median P/S ratio is around 0.4x. 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.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

View our latest analysis for Lojas Quero-Quero

How Lojas Quero-Quero Has Been Performing

Recent revenue growth for Lojas Quero-Quero has been in line with the industry. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. Those who are bullish on Lojas Quero-Quero will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

Want the full picture on analyst estimates for the company? Then our free report on Lojas Quero-Quero will help you uncover what's on the horizon.

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like Lojas Quero-Quero's to be considered reasonable.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The latest three year period has also seen a 26% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 9.7% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 3.2%, which is noticeably less attractive.

With this information, we find it interesting that Lojas Quero-Quero 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.

The Final Word

Lojas Quero-Quero appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

Despite enticing revenue growth figures that outpace the industry, Lojas Quero-Quero's P/S isn't quite what we'd expect. 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. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Before you take the next step, you should know about the 3 warning signs for Lojas Quero-Quero (1 is a bit unpleasant!) that we have uncovered.

If you're unsure about the strength of Lojas Quero-Quero's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.