Bigblu Broadband plc (LON:BBB) Stock Rockets 32% As Investors Are Less Pessimistic Than Expected

Bigblu Broadband plc (LON:BBB) shares have had a really impressive month, gaining 32% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 4.2% isn't as attractive.

Although its price has surged higher, it's still not a stretch to say that Bigblu Broadband's price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Telecom industry in the United Kingdom, where the median P/S ratio is around 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Bigblu Broadband

How Bigblu Broadband Has Been Performing

Bigblu Broadband could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. 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 Bigblu Broadband will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

Bigblu Broadband's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.5%. The last three years don't look nice either as the company has shrunk revenue by 6.8% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue growth is heading into negative territory, declining 3.3% over the next year. That's not great when the rest of the industry is expected to grow by 0.7%.

With this in consideration, we think it doesn't make sense that Bigblu Broadband's P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Bottom Line On Bigblu Broadband's P/S

Bigblu Broadband appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

While Bigblu Broadband's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Bigblu Broadband (1 shouldn't be ignored!) that you should be aware of before investing here.

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