BlueFocus Intelligent Communications Group Co., Ltd.'s (SZSE:300058) Shares Lagging The Industry But So Is The Business

BlueFocus Intelligent Communications Group Co., Ltd.'s (SZSE:300058) price-to-sales (or "P/S") ratio of 0.4x might make it look like a strong buy right now compared to the Media industry in China, where around half of the companies have P/S ratios above 2.6x and even P/S above 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for BlueFocus Intelligent Communications Group

How Has BlueFocus Intelligent Communications Group Performed Recently?

Recent times have been advantageous for BlueFocus Intelligent Communications Group as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think BlueFocus Intelligent Communications Group'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?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like BlueFocus Intelligent Communications Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. Revenue has also lifted 25% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 9.9% over the next year. That's shaping up to be materially lower than the 20% growth forecast for the broader industry.

In light of this, it's understandable that BlueFocus Intelligent Communications Group's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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.

As expected, our analysis of BlueFocus Intelligent Communications Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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. The company will need a change of fortune to justify the P/S rising higher in the future.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for BlueFocus Intelligent Communications Group with six simple checks on some of these key factors.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.