Benign Growth For Beamtree Holdings Limited (ASX:BMT) Underpins Stock's 28% Plummet

Beamtree Holdings Limited (ASX:BMT) shares have had a horrible month, losing 28% after a relatively good period beforehand. Longer-term, the stock has been solid despite a difficult 30 days, gaining 22% in the last year.

Since its price has dipped substantially, Beamtree Holdings' price-to-sales (or "P/S") ratio of 2.2x might make it look like a strong buy right now compared to the wider Healthcare Services industry in Australia, where around half of the companies have P/S ratios above 8.7x and even P/S above 46x 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 so limited.

See our latest analysis for Beamtree Holdings

What Does Beamtree Holdings' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Beamtree Holdings has been relatively sluggish. 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.

Keen to find out how analysts think Beamtree Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Beamtree Holdings would need to produce anemic growth that's substantially trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 15%. This was backed up an excellent period prior to see revenue up by 145% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 14% as estimated by the one analyst watching the company. That's shaping up to be materially lower than the 223% growth forecast for the broader industry.

In light of this, it's understandable that Beamtree Holdings' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Beamtree Holdings' P/S

Shares in Beamtree Holdings have plummeted and its P/S has followed suit. 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.

As expected, our analysis of Beamtree Holdings' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Beamtree Holdings you should know about.

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.

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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.