Investors Still Aren't Entirely Convinced By Light S.A.'s (BVMF:LIGT3) Revenues Despite 25% Price Jump

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Light S.A. (BVMF:LIGT3) shares have continued their recent momentum with a 25% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 54% in the last year.

Even after such a large jump in price, considering around half the companies operating in Brazil's Electric Utilities industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Light as an solid investment opportunity with its 0.2x P/S ratio. 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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See our latest analysis for Light

How Light Has Been Performing

Recent times haven't been great for Light as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Light?

Light's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 3.6% as estimated by the three analysts watching the company. With the rest of the industry predicted to shrink by 13%, it's still an optimal result.

With this in mind, we find it curious but not unexplainable that Light's P/S falls short of its industry peers. With revenue going in reverse, it's not guaranteed that the P/S has found a floor yet. Even just maintaining these prices could be difficult to achieve as the weak outlook is already weighing down the shares excessively.

The Bottom Line On Light's P/S

Despite Light's share price climbing recently, its P/S still lags most other companies. 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.

Our examination of Light's analyst forecasts revealed that its P/S ratio is lower than expected, given it's set to outperform the broader industry. There could be some major unobserved threats to revenue preventing the P/S ratio from matching the more attractive outlook. One major risk is whether its revenue trajectory can keep outperforming under these tough industry conditions. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

You need to take note of risks, for example - Light has 3 warning signs (and 2 which are potentially serious) we think you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.