BlueFocus Intelligent Communications Group Co., Ltd.'s (SZSE:300058) Share Price Boosted 50% But Its Business Prospects Need A Lift Too

Despite an already strong run, BlueFocus Intelligent Communications Group Co., Ltd. (SZSE:300058) shares have been powering on, with a gain of 50% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 38% in the last year.

Even after such a large jump in price, BlueFocus Intelligent Communications Group may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.5x, since almost half of all companies in the Media industry in China have P/S ratios greater than 3.7x and even P/S higher than 7x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for BlueFocus Intelligent Communications Group

How Has BlueFocus Intelligent Communications Group Performed Recently?

BlueFocus Intelligent Communications Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on BlueFocus Intelligent Communications Group will help you uncover what's on the horizon.

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.

If we review the last year of revenue growth, the company posted a terrific increase of 33%. The latest three year period has also seen an excellent 43% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 11% over the next year. That's shaping up to be materially lower than the 14% growth forecast for the broader industry.

With this information, we can see why BlueFocus Intelligent Communications Group is trading at a P/S lower than the industry. 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 BlueFocus Intelligent Communications Group's P/S?

Shares in BlueFocus Intelligent Communications Group have risen appreciably however, its P/S is still subdued. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of BlueFocus Intelligent Communications Group'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 BlueFocus Intelligent Communications Group that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.