There's Reason For Concern Over Bravura Solutions Limited's (ASX:BVS) Massive 26% Price Jump

The Bravura Solutions Limited (ASX:BVS) share price has done very well over the last month, posting an excellent gain of 26%. Looking back a bit further, it's encouraging to see the stock is up 77% in the last year.

Even after such a large jump in price, it's still not a stretch to say that Bravura Solutions' price-to-sales (or "P/S") ratio of 2.3x right now seems quite "middle-of-the-road" compared to the Software industry in Australia, where the median P/S ratio is around 2.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Bravura Solutions

What Does Bravura Solutions' P/S Mean For Shareholders?

Recent times haven't been great for Bravura Solutions as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is Bravura Solutions' Revenue Growth Trending?

In order to justify its P/S ratio, Bravura Solutions would need to produce growth that's similar to the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. That's essentially a continuation of what we've seen over the last three years, as its revenue growth has been virtually non-existent for that entire period. So it seems apparent to us that the company has struggled to grow revenue meaningfully over that time.

Looking ahead now, revenue is anticipated to climb by 0.2% each year during the coming three years according to the six analysts following the company. With the industry predicted to deliver 21% growth each year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Bravura Solutions' P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

Bravura Solutions appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

When you consider that Bravura Solutions' revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Bravura Solutions with six simple checks.

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