Investors Still Aren't Entirely Convinced By Lojas Quero-Quero S.A.'s (BVMF:LJQQ3) Revenues Despite 29% Price Jump

Lojas Quero-Quero S.A. (BVMF:LJQQ3) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 48%.

Although its price has surged higher, there still wouldn't be many who think Lojas Quero-Quero's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when it essentially matches the median P/S in Brazil's Specialty Retail industry. 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.

See our latest analysis for Lojas Quero-Quero

What Does Lojas Quero-Quero's Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Lojas Quero-Quero has been doing quite well of late. One possibility is that the P/S ratio is moderate because investors think the company's revenue will be less resilient moving forward. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Lojas Quero-Quero.

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 3.7% gain to the company's revenues. Pleasingly, revenue has also lifted 48% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 15% per year over the next three years. With the industry only predicted to deliver 5.4% each year, the company is positioned for a stronger revenue result.

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

The Final Word

Lojas Quero-Quero's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

We've established that Lojas Quero-Quero 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. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Lojas Quero-Quero (of which 1 can't be ignored!) you should know about.

If these risks are making you reconsider your opinion on Lojas Quero-Quero, 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.