BASE FOOD Inc.'s (TSE:2936) 26% Cheaper Price Remains In Tune With Revenues

BASE FOOD Inc. (TSE:2936) shares have had a horrible month, losing 26% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 25% share price drop.

In spite of the heavy fall in price, you could still be forgiven for thinking BASE FOOD is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.3x, considering almost half the companies in Japan's Food industry have P/S ratios below 0.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for BASE FOOD

What Does BASE FOOD's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, BASE FOOD has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. 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 BASE FOOD's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, BASE FOOD would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 51% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 30% during the coming year according to the one analyst following the company. With the industry only predicted to deliver 5.4%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that BASE FOOD's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From BASE FOOD's P/S?

Despite the recent share price weakness, BASE FOOD's P/S remains higher than most other companies in the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that BASE FOOD maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Food industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with BASE FOOD, and understanding them should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.