What You Can Learn From Beeks Financial Cloud Group plc's (LON:BKS) P/S After Its 33% Share Price Crash

Beeks Financial Cloud Group plc (LON:BKS) shareholders that were waiting for something to happen have been dealt a blow with a 33% share price drop in the last month. Longer-term, the stock has been solid despite a difficult 30 days, gaining 15% in the last year.

Although its price has dipped substantially, given around half the companies in the United Kingdom's IT industry have price-to-sales ratios (or "P/S") below 1.2x, you may still consider Beeks Financial Cloud Group as a stock to avoid entirely with its 4.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Beeks Financial Cloud Group

What Does Beeks Financial Cloud Group's Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Beeks Financial Cloud Group has been doing quite well of late. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Beeks Financial Cloud Group's future stacks up against the industry? In that case, our free report is a great place to start.

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

Beeks Financial Cloud Group's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. The latest three year period has also seen an excellent 123% 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 dual analysts covering the company suggest revenue should grow by 24% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 7.1%, which is noticeably less attractive.

With this information, we can see why Beeks Financial Cloud Group is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Even after such a strong price drop, Beeks Financial Cloud Group's P/S still exceeds the industry median significantly. 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.

Our look into Beeks Financial Cloud Group 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Beeks Financial Cloud Group that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.