Further Upside For Companhia Estadual de Distribuição de Energia Elétrica (BVMF:CEED3) Shares Could Introduce Price Risks After 27% Bounce

Companhia Estadual de Distribuição de Energia Elétrica (BVMF:CEED3) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 28% over that time.

In spite of the firm bounce in price, it would still be understandable if you think Companhia Estadual de Distribuição de Energia Elétrica is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.4x, considering almost half the companies in Brazil's Electric Utilities industry have P/S ratios above 1.1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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

How Has Companhia Estadual de Distribuição de Energia Elétrica Performed Recently?

For instance, Companhia Estadual de Distribuição de Energia Elétrica's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. Those who are bullish on Companhia Estadual de Distribuição de Energia Elétrica will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Companhia Estadual de Distribuição de Energia Elétrica's earnings, revenue and cash flow.

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

The only time you'd be truly comfortable seeing a P/S as low as Companhia Estadual de Distribuição de Energia Elétrica's is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 3.1%. Still, the latest three year period has seen an excellent 37% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 2.3% shows it's a great look while it lasts.

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. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

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

Despite Companhia Estadual de Distribuição de Energia Elétrica's share price climbing recently, its P/S still lags most other companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Companhia Estadual de Distribuição de Energia Elétrica revealed that despite growing revenue over the medium-term in a shrinking industry, the P/S doesn't reflect this as it's lower than the industry average. One assumption would be that there are some underlying risks to revenue that are keeping the P/S from rising to match the its strong performance. Amidst challenging industry conditions, perhaps a key concern is whether the company can sustain its superior revenue growth trajectory. It appears many are indeed anticipating revenue instability, because this relative performance should normally provide a boost to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Companhia Estadual de Distribuição de Energia Elétrica.

If these risks are making you reconsider your opinion on Companhia Estadual de Distribuição de Energia Elétrica, 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.