It's Down 31% But CyberBuzz, Inc. (TSE:7069) Could Be Riskier Than It Looks

Unfortunately for some shareholders, the CyberBuzz, Inc. (TSE:7069) share price has dived 31% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 17% share price drop.

Since its price has dipped substantially, it would be understandable if you think CyberBuzz is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.6x, considering almost half the companies in Japan's Interactive Media and Services industry have P/S ratios above 1.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for CyberBuzz

How Has CyberBuzz Performed Recently?

Recent times have been advantageous for CyberBuzz as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think CyberBuzz's future stacks up against the industry? In that case, our free report is a great place to start.

How Is CyberBuzz's Revenue Growth Trending?

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.

Retrospectively, the last year delivered an exceptional 50% gain to the company's top line. Pleasingly, revenue has also lifted 146% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 18% each year over the next three years. With the industry only predicted to deliver 8.4% each year, the company is positioned for a stronger revenue result.

With this information, we find it odd that CyberBuzz is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

CyberBuzz's P/S has taken a dip along with its share price. 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.

To us, it seems CyberBuzz currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. There could be some major risk factors that are placing downward pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 2 warning signs for CyberBuzz (1 is significant!) that you need to take into consideration.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com