Even With A 29% Surge, Cautious Investors Are Not Rewarding Companhia Estadual de Distribuição de Energia Elétrica's (BVMF:CEED3) Performance Completely

Companhia Estadual de Distribuição de Energia Elétrica (BVMF:CEED3) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 36% in the last twelve months.

In spite of the firm bounce in price, Companhia Estadual de Distribuição de Energia Elétrica's price-to-sales (or "P/S") ratio of 0.1x might still make it look like a buy right now compared to the Electric Utilities industry in Brazil, where around half of the companies have P/S ratios above 1x and even P/S above 3x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for Companhia Estadual de Distribuição de Energia Elétrica

What Does Companhia Estadual de Distribuição de Energia Elétrica's Recent Performance Look Like?

Companhia Estadual de Distribuição de Energia Elétrica has been doing a good job lately as it's been growing revenue at a solid pace. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Companhia Estadual de Distribuição de Energia Elétrica will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Companhia Estadual de Distribuição de Energia Elétrica?

In order to justify its P/S ratio, Companhia Estadual de Distribuição de Energia Elétrica would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. The latest three year period has also seen a 22% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to decline by 15% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

In light of this, it's quite peculiar that Companhia Estadual de Distribuição de Energia Elétrica's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

The Bottom Line On Companhia Estadual de Distribuição de Energia Elétrica's P/S

Companhia Estadual de Distribuição de Energia Elétrica's stock price has surged recently, but its but its P/S still remains modest. 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.

Upon analysing the past data, we see it is unexpected that Companhia Estadual de Distribuição de Energia Elétrica is currently trading at a lower P/S than the rest of the industry given that its revenue growth in the past three-year years is exceeding expectations in a challenging industry. We think potential risks might be placing significant pressure on the P/S ratio and share price. The most obvious risk is that its revenue trajectory may not keep outperforming under these tough industry conditions. While the chance of the share price dropping sharply is fairly remote, investors do seem to be anticipating future revenue instability.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Companhia Estadual de Distribuição de Energia Elétrica that you need to be mindful of.

If you're unsure about the strength of Companhia Estadual de Distribuição de Energia Elétrica'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.