B-SOFT Co.,Ltd. (SZSE:300451) Stock Catapults 28% Though Its Price And Business Still Lag The Industry

Simply Wall St · 09/27 22:03

B-SOFT Co.,Ltd. (SZSE:300451) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 40% in the last twelve months.

In spite of the firm bounce in price, B-SOFTLtd's price-to-sales (or "P/S") ratio of 3.8x might still make it look like a buy right now compared to the Healthcare Services industry in China, where around half of the companies have P/S ratios above 5.5x and even P/S above 9x 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.

View our latest analysis for B-SOFTLtd

ps-multiple-vs-industry
SZSE:300451 Price to Sales Ratio vs Industry September 27th 2024

What Does B-SOFTLtd's P/S Mean For Shareholders?

Recent revenue growth for B-SOFTLtd has been in line with the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on B-SOFTLtd will be hoping that this isn't the case.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

B-SOFTLtd'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 13% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 3.7% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 23% over the next year. Meanwhile, the rest of the industry is forecast to expand by 155%, which is noticeably more attractive.

In light of this, it's understandable that B-SOFTLtd's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does B-SOFTLtd's P/S Mean For Investors?

B-SOFTLtd's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of B-SOFTLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - B-SOFTLtd has 1 warning sign we think you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.