cBrain A/S' (CPH:CBRAIN) P/S Is Still On The Mark Following 48% Share Price Bounce

cBrain A/S (CPH:CBRAIN) shareholders have had their patience rewarded with a 48% share price jump in the last month. The annual gain comes to 165% following the latest surge, making investors sit up and take notice.

After such a large jump in price, you could be forgiven for thinking cBrain is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 30.8x, considering almost half the companies in Denmark's Software industry have P/S ratios below 3.9x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for cBrain

How Has cBrain Performed Recently?

Recent times haven't been great for cBrain as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on cBrain.

Is There Enough Revenue Growth Forecasted For cBrain?

The only time you'd be truly comfortable seeing a P/S as steep as cBrain's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 27%. Pleasingly, revenue has also lifted 99% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 27% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 9.4%, which is noticeably less attractive.

In light of this, it's understandable that cBrain's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

cBrain's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

Our look into cBrain shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for cBrain that you should be aware of.

If these risks are making you reconsider your opinion on cBrain, 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.