BBMG Corporation (HKG:2009) shareholders have had their patience rewarded with a 88% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 40% in the last year.
In spite of the firm bounce in price, there still wouldn't be many who think BBMG's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in Hong Kong's Basic Materials industry is similar at about 0.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Check out our latest analysis for BBMG
What Does BBMG's Recent Performance Look Like?
BBMG certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained. Those who are bullish on BBMG will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.
Want the full picture on analyst estimates for the company? Then our free report on BBMG will help you uncover what's on the horizon.Do Revenue Forecasts Match The P/S Ratio?
There's an inherent assumption that a company should be matching the industry for P/S ratios like BBMG's to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 7.7% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 16% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 3.6% over the next year. Meanwhile, the rest of the industry is forecast to expand by 4.1%, which is not materially different.
With this in mind, it makes sense that BBMG's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.
The Final Word
BBMG's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
A BBMG's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Basic Materials industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.
Having said that, be aware BBMG is showing 1 warning sign in our investment analysis, you should know about.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.