Some Confidence Is Lacking In Bright Oceans Inter-Telecom Corporation (SHSE:600289) As Shares Slide 30%

To the annoyance of some shareholders, Bright Oceans Inter-Telecom Corporation (SHSE:600289) shares are down a considerable 30% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 60% loss during that time.

Although its price has dipped substantially, there still wouldn't be many who think Bright Oceans Inter-Telecom's price-to-sales (or "P/S") ratio of 3x is worth a mention when the median P/S in China's IT industry is similar at about 3.1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Bright Oceans Inter-Telecom

What Does Bright Oceans Inter-Telecom's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Bright Oceans Inter-Telecom over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Bright Oceans Inter-Telecom will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

Bright Oceans Inter-Telecom's 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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 38%. As a result, revenue from three years ago have also fallen 58% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 34% shows it's an unpleasant look.

With this information, we find it concerning that Bright Oceans Inter-Telecom is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Bright Oceans Inter-Telecom's P/S?

Following Bright Oceans Inter-Telecom's share price tumble, its P/S is just clinging on to the industry median P/S. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We find it unexpected that Bright Oceans Inter-Telecom trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 1 warning sign for Bright Oceans Inter-Telecom you should be aware of.

If these risks are making you reconsider your opinion on Bright Oceans Inter-Telecom, 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.