A Piece Of The Puzzle Missing From Black Cat Syndicate Limited's (ASX:BC8) 57% Share Price Climb

Black Cat Syndicate Limited (ASX:BC8) shares have continued their recent momentum with a 57% gain in the last month alone. The annual gain comes to 205% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Black Cat Syndicate may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 26.1x, since almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 93.5x and even P/S higher than 590x are not unusual. 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.

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See our latest analysis for Black Cat Syndicate

How Has Black Cat Syndicate Performed Recently?

Black Cat Syndicate certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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 Black Cat Syndicate's earnings, revenue and cash flow.

How Is Black Cat Syndicate's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Black Cat Syndicate's to be considered reasonable.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 72% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that Black Cat Syndicate is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Black Cat Syndicate's P/S

Even after such a strong price move, Black Cat Syndicate's P/S still trails the rest of the industry. 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 Black Cat Syndicate currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

Before you settle on your opinion, we've discovered 3 warning signs for Black Cat Syndicate that you should be aware of.

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.