Beeks Financial Cloud Group plc (LON:BKS) Looks Just Right With A 25% Price Jump

Beeks Financial Cloud Group plc (LON:BKS) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 94%.

After such a large jump in price, you could be forgiven for thinking Beeks Financial Cloud Group is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5.6x, considering almost half the companies in the United Kingdom's IT industry have P/S ratios below 1.5x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Beeks Financial Cloud Group

How Beeks Financial Cloud Group Has Been Performing

Beeks Financial Cloud Group certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Beeks Financial Cloud Group's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Beeks Financial Cloud Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. Pleasingly, revenue has also lifted 141% 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.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 37% over the next year. That's shaping up to be materially higher than the 5.6% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Beeks Financial Cloud Group's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has lead to Beeks Financial Cloud Group's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into Beeks Financial Cloud Group shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Beeks Financial Cloud Group 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