Beam Communications Holdings Limited's (ASX:BCC) Shares Bounce 28% But Its Business Still Trails The Industry

Despite an already strong run, Beam Communications Holdings Limited (ASX:BCC) shares have been powering on, with a gain of 28% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 32% in the last twelve months.

Even after such a large jump in price, Beam Communications Holdings' price-to-sales (or "P/S") ratio of 0.3x might still make it look like a buy right now compared to the Communications industry in Australia, where around half of the companies have P/S ratios above 1.7x and even P/S above 5x 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 limited.

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How Has Beam Communications Holdings Performed Recently?

As an illustration, revenue has deteriorated at Beam Communications Holdings over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Beam Communications Holdings will help you shine a light on its historical performance.

How Is Beam Communications Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Beam Communications Holdings' is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 17%. Even so, admirably revenue has lifted 36% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 14% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's understandable that Beam Communications Holdings' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Beam Communications Holdings' P/S?

Despite Beam Communications Holdings' share price climbing recently, its P/S still lags most other companies. 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.

In line with expectations, Beam Communications Holdings maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Beam Communications Holdings you should know about.

If these risks are making you reconsider your opinion on Beam Communications Holdings, 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.