It's Down 44% But Beston Global Food Company Limited (ASX:BFC) Could Be Riskier Than It Looks

The Beston Global Food Company Limited (ASX:BFC) share price has fared very poorly over the last month, falling by a substantial 44%. For any long-term shareholders, the last month ends a year to forget by locking in a 71% share price decline.

After such a large drop in price, Beston Global Food may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Food industry in Australia have P/S ratios greater than 1x and even P/S higher than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Beston Global Food

How Beston Global Food Has Been Performing

Beston Global Food has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. Those who are bullish on Beston Global Food 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 Beston Global Food's earnings, revenue and cash flow.

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Beston Global Food's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. Pleasingly, revenue has also lifted 75% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 7.8% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's peculiar that Beston Global Food's P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Beston Global Food's P/S Mean For Investors?

The southerly movements of Beston Global Food's shares means its P/S is now sitting at a pretty low level. 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.

We're very surprised to see Beston Global Food currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 5 warning signs with Beston Global Food (at least 3 which are concerning), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Beston Global Food, 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.