A Piece Of The Puzzle Missing From Hidrovias do Brasil S.A.'s (BVMF:HBSA3) 26% Share Price Climb

Hidrovias do Brasil S.A. (BVMF:HBSA3) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Hidrovias do Brasil's P/S ratio of 1.6x, since the median price-to-sales (or "P/S") ratio for the Shipping industry in Brazil is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

We've discovered 1 warning sign about Hidrovias do Brasil. View them for free.

See our latest analysis for Hidrovias do Brasil

How Has Hidrovias do Brasil Performed Recently?

While the industry has experienced revenue growth lately, Hidrovias do Brasil's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Hidrovias do Brasil'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?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 30%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 21% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should demonstrate the company's robustness, generating growth of 26% per year as estimated by the five analysts watching the company. Meanwhile, the broader industry is forecast to contract by 1.3% per annum, which would indicate the company is doing very well.

With this in mind, we find it intriguing that Hidrovias do Brasil's P/S trades in-line with its industry peers. Apparently some shareholders are skeptical of the contrarian forecasts and have been accepting lower selling prices.

What We Can Learn From Hidrovias do Brasil's P/S?

Hidrovias do Brasil appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We note that even though Hidrovias do Brasil trades at a similar P/S as the rest of the industry, it far eclipses them in terms of forecasted revenue growth. We assume that investors are attributing some risk to the company's future revenues, keeping it from trading at a higher P/S. The market could be pricing in the event that tough industry conditions will impact future revenues. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Before you settle on your opinion, we've discovered 1 warning sign for Hidrovias do Brasil that you should be aware of.

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

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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.