Bowen Coking Coal Limited's (ASX:BCB) Share Price Boosted 35% But Its Business Prospects Need A Lift Too

Bowen Coking Coal Limited (ASX:BCB) shareholders are no doubt pleased to see that the share price has bounced 35% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 61% share price drop in the last twelve months.

Even after such a large jump in price, Bowen Coking Coal may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.4x, since almost half of all companies in the Metals and Mining industry in Australia have P/S ratios greater than 98.5x and even P/S higher than 544x 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.

View our latest analysis for Bowen Coking Coal

How Has Bowen Coking Coal Performed Recently?

Recent times have been advantageous for Bowen Coking Coal as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For Bowen Coking Coal?

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

Retrospectively, the last year delivered an explosive gain to the company's top line. The amazing performance means it was also able to deliver huge revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 33% per year as estimated by the dual analysts watching the company. With the industry predicted to deliver 278% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why Bowen Coking Coal is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Bowen Coking Coal's P/S?

Bowen Coking Coal's recent share price jump still sees fails to bring its P/S alongside the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Bowen Coking Coal maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Bowen Coking Coal (1 is concerning!) that you should be aware of before investing here.

If you're unsure about the strength of Bowen Coking Coal's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.