Investors Don't See Light At End Of CyberBuzz, Inc.'s (TSE:7069) Tunnel

CyberBuzz, Inc.'s (TSE:7069) price-to-sales (or "P/S") ratio of 0.5x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Interactive Media and Services industry in Japan have P/S ratios greater than 1.6x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for CyberBuzz

What Does CyberBuzz's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, CyberBuzz's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on CyberBuzz will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For CyberBuzz?

The only time you'd be truly comfortable seeing a P/S as low as CyberBuzz's is when the company's growth is on track to lag 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 5.9%. Still, the latest three year period has seen an excellent 73% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 6.6% per annum during the coming three years according to the lone analyst following the company. With the industry predicted to deliver 14% growth per year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why CyberBuzz's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

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 CyberBuzz's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for CyberBuzz (1 makes us a bit uncomfortable) you should be aware of.

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