Bojun Education Company Limited's (HKG:1758) 33% Dip In Price Shows Sentiment Is Matching Revenues

Bojun Education Company Limited (HKG:1758) shareholders that were waiting for something to happen have been dealt a blow with a 33% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 46% in that time.

After such a large drop in price, when close to half the companies operating in Hong Kong's Consumer Services industry have price-to-sales ratios (or "P/S") above 1.1x, you may consider Bojun Education as an enticing stock to check out with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Bojun Education

What Does Bojun Education's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Bojun Education has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite 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 Bojun Education's earnings, revenue and cash flow.

How Is Bojun Education's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Bojun Education's to be considered reasonable.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. In spite of this unbelievable short-term growth, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing that to the industry, which is predicted to deliver 20% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Bojun Education is trading at a P/S lower than the industry. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Bojun Education's P/S?

Bojun Education's P/S has taken a dip along with its share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Bojun Education revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

Plus, you should also learn about these 2 warning signs we've spotted with Bojun Education.

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.