Bright Scholar Education Holdings Limited's (NYSE:BEDU) Low P/S No Reason For Excitement

When you see that almost half of the companies in the Consumer Services industry in the United States have price-to-sales ratios (or "P/S") above 1.4x, Bright Scholar Education Holdings Limited (NYSE:BEDU) looks to be giving off some buy signals with its 0.2x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Bright Scholar Education Holdings

What Does Bright Scholar Education Holdings' P/S Mean For Shareholders?

Bright Scholar Education Holdings has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If you 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 earnings, revenue and cash flow for the company? Then our free report on Bright Scholar Education Holdings will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Bright Scholar Education Holdings?

The only time you'd be truly comfortable seeing a P/S as low as Bright Scholar Education Holdings' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 31% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 15% shows it's an unpleasant look.

With this information, we are not surprised that Bright Scholar Education Holdings is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Bright Scholar Education Holdings' P/S Mean For Investors?

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Bright Scholar Education Holdings confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

You need to take note of risks, for example - Bright Scholar Education Holdings has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

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.