BlueMeme Inc.'s (TSE:4069) Shares Climb 26% But Its Business Is Yet to Catch Up

BlueMeme Inc. (TSE:4069) shares have continued their recent momentum with a 26% gain in the last month alone. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

After such a large jump in price, you could be forgiven for thinking BlueMeme is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.9x, considering almost half the companies in Japan's IT industry have P/S ratios below 1.1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for BlueMeme

How Has BlueMeme Performed Recently?

We'd have to say that with no tangible growth over the last year, BlueMeme's revenue has been unimpressive. Perhaps the market believes that revenue growth will improve markedly over current levels, inflating the P/S ratio. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is BlueMeme's Revenue Growth Trending?

BlueMeme's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Still, the latest three year period was better as it's delivered a decent 18% overall rise in revenue. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 6.8% shows it's about the same on an annualised basis.

With this in mind, we find it intriguing that BlueMeme's P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly average recent growth rates and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as a continuation of recent revenue trends would weigh down the share price eventually.

What We Can Learn From BlueMeme's P/S?

BlueMeme's P/S is on the rise since its shares have risen strongly. 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.

Our examination of BlueMeme revealed its three-year revenue trends aren't impacting its high P/S as much as we would have predicted, given they look similar to current industry expectations. When we see average revenue with industry-like growth combined with a high P/S, we suspect the share price is at risk of declining, bringing the P/S back in line with the industry too. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Plus, you should also learn about these 4 warning signs we've spotted with BlueMeme (including 2 which can't be ignored).

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.