Improved Revenues Required Before BirdDog Technology Limited (ASX:BDT) Stock's 43% Jump Looks Justified

Despite an already strong run, BirdDog Technology Limited (ASX:BDT) shares have been powering on, with a gain of 43% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 11% in the last twelve months.

In spite of the firm bounce in price, BirdDog Technology's price-to-sales (or "P/S") ratio of 0.7x might still make it look like a buy right now compared to the Tech industry in Australia, where around half of the companies have P/S ratios above 1.3x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for BirdDog Technology

How BirdDog Technology Has Been Performing

For example, consider that BirdDog Technology's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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 BirdDog Technology's earnings, revenue and cash flow.

How Is BirdDog Technology's Revenue Growth Trending?

BirdDog Technology's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 32%. The last three years don't look nice either as the company has shrunk revenue by 59% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 7.7% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's understandable that BirdDog Technology's P/S would sit below the majority of other companies. However, we think shrinking revenues are unlikely to lead to a stable P/S over the longer term, which could set up shareholders for future disappointment. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

BirdDog Technology's stock price has surged recently, but its but its P/S still remains modest. 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 BirdDog Technology confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. 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 moving strongly in either direction in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with BirdDog Technology, and understanding these should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.