Investors Still Aren't Entirely Convinced By The Blockchain Group's (EPA:ALTBG) Revenues Despite 38% Price Jump

The The Blockchain Group (EPA:ALTBG) share price has done very well over the last month, posting an excellent gain of 38%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

Even after such a large jump in price, Blockchain Group may still be sending 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 Software industry in France have P/S ratios greater than 1.8x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Blockchain Group

What Does Blockchain Group's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Blockchain Group over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Blockchain Group's earnings, revenue and cash flow.

How Is Blockchain Group's Revenue Growth Trending?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 13%. Even so, admirably revenue has lifted 164% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

When compared to the industry's one-year growth forecast of 9.2%, the most recent medium-term revenue trajectory is noticeably more alluring

With this in mind, we find it intriguing that Blockchain Group's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Blockchain Group's P/S?

Blockchain Group's stock price has surged recently, but its but its P/S still remains modest. 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.

We're very surprised to see Blockchain Group currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

It is also worth noting that we have found 4 warning signs for Blockchain Group (2 make us uncomfortable!) that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com