Little Excitement Around Bubbles Intergroup Ltd's (TLV:BBLS) Revenues As Shares Take 27% Pounding

The Bubbles Intergroup Ltd (TLV:BBLS) share price has fared very poorly over the last month, falling by a substantial 27%. The recent drop has obliterated the annual return, with the share price now down 7.9% over that longer period.

Following the heavy fall in price, Bubbles Intergroup's price-to-sales (or "P/S") ratio of 0.4x might make it look like a buy right now compared to the Software industry in Israel, where around half of the companies have P/S ratios above 2.1x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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See our latest analysis for Bubbles Intergroup

How Bubbles Intergroup Has Been Performing

For instance, Bubbles Intergroup's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Bubbles Intergroup will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Bubbles Intergroup?

In order to justify its P/S ratio, Bubbles Intergroup would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 9.4% decrease to the company's top line. Unfortunately, that's brought it right back to where it started three years ago with revenue growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the industry, which is expected to grow by 21% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Bubbles Intergroup is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Bubbles Intergroup's P/S?

Bubbles Intergroup's recently weak share price has pulled its P/S back below other Software companies. 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.

As we suspected, our examination of Bubbles Intergroup 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.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Bubbles Intergroup that you should be aware of.

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.