Big Technologies PLC's (LON:BIG) 61% Price Boost Is Out Of Tune With Revenues

Big Technologies PLC (LON:BIG) shares have had a really impressive month, gaining 61% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 31% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Big Technologies is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.7x, considering almost half the companies in the United Kingdom's Electronic industry have P/S ratios below 1.2x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Our free stock report includes 2 warning signs investors should be aware of before investing in Big Technologies. Read for free now.

View our latest analysis for Big Technologies

How Has Big Technologies Performed Recently?

Big Technologies could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely 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 Big Technologies.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Big Technologies would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 8.9% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 34% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 3.1% each year as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 5.6% per annum, which is noticeably more attractive.

In light of this, it's alarming that Big Technologies' P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

Shares in Big Technologies have seen a strong upwards swing lately, which has really helped boost its P/S figure. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Big Technologies, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 2 warning signs for Big Technologies you should be aware of, and 1 of them is a bit concerning.

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.