Beonic Limited (ASX:BEO) Not Doing Enough For Some Investors As Its Shares Slump 29%

The Beonic Limited (ASX:BEO) share price has fared very poorly over the last month, falling by a substantial 29%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 33% share price drop.

Following the heavy fall in price, Beonic's price-to-sales (or "P/S") ratio of 0.6x might make it look like a strong buy right now compared to the wider Software industry in Australia, where around half of the companies have P/S ratios above 3.3x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Beonic

How Has Beonic Performed Recently?

It looks like revenue growth has deserted Beonic recently, which is not something to boast about. Perhaps the market believes the recent lacklustre revenue performance is a sign of future underperformance relative to industry peers, hurting the P/S. 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 Beonic's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Beonic?

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

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. However, a few strong years before that means that it was still able to grow revenue by an impressive 50% in total over the last three years. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

This is in contrast to the rest of the industry, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Beonic is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Having almost fallen off a cliff, Beonic's share price has pulled its P/S way down as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of Beonic confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Beonic has 4 warning signs (and 3 which are concerning) we think you should know about.

If these risks are making you reconsider your opinion on Beonic, 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.