Even With A 94% Surge, Cautious Investors Are Not Rewarding BuildDirect.com Technologies Inc.'s (CVE:BILD) Performance Completely

BuildDirect.com Technologies Inc. (CVE:BILD) shareholders would be excited to see that the share price has had a great month, posting a 94% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 49% over that time.

Although its price has surged higher, it's still not a stretch to say that BuildDirect.com Technologies' price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in Canada, where the median P/S ratio is around 0.5x. 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.

View our latest analysis for BuildDirect.com Technologies

How BuildDirect.com Technologies Has Been Performing

It looks like revenue growth has deserted BuildDirect.com Technologies recently, which is not something to boast about. It might be that many expect the uninspiring revenue performance to only match most other companies at best over the coming period, which has kept the P/S from rising. If not, then existing shareholders may be feeling hopeful about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The P/S?

BuildDirect.com Technologies' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. However, a few strong years before that means that it was still able to grow revenue by an impressive 127% 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.

When compared to the industry's one-year growth forecast of 14%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it interesting that BuildDirect.com Technologies is trading at a fairly similar P/S compared to the industry. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Its shares have lifted substantially and now BuildDirect.com Technologies' P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

To our surprise, BuildDirect.com Technologies revealed its three-year revenue trends aren't contributing to its P/S as much as we would have predicted, given they look better than current industry expectations. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with BuildDirect.com Technologies (including 1 which can't be ignored).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.