B-SOFT Co.,Ltd.'s (SZSE:300451) Shares Bounce 42% But Its Business Still Trails The Industry

B-SOFT Co.,Ltd. (SZSE:300451) shareholders would be excited to see that the share price has had a great month, posting a 42% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 42%.

Although its price has surged higher, when close to half the companies operating in China's Healthcare Services industry have price-to-sales ratios (or "P/S") above 9x, you may still consider B-SOFTLtd as an enticing stock to check out with its 5.8x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for B-SOFTLtd

How B-SOFTLtd Has Been Performing

With revenue growth that's superior to most other companies of late, B-SOFTLtd has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

If we review the last year of revenue growth, the company posted a worthy increase of 5.3%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 5.6% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 23% over the next year. Meanwhile, the rest of the industry is forecast to expand by 28%, which is noticeably more attractive.

In light of this, it's understandable that B-SOFTLtd's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From B-SOFTLtd's P/S?

B-SOFTLtd's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of B-SOFTLtd's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for B-SOFTLtd that you should be aware of.

If these risks are making you reconsider your opinion on B-SOFTLtd, 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.