Baozun Inc.'s (NASDAQ:BZUN) Low P/S No Reason For Excitement

Baozun Inc.'s (NASDAQ:BZUN) price-to-sales (or "P/S") ratio of 0.1x might make it look like a buy right now compared to the Multiline Retail industry in the United States, where around half of the companies have P/S ratios above 0.8x and even P/S above 3x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Baozun

How Baozun Has Been Performing

While the industry has experienced revenue growth lately, Baozun's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Baozun.

Is There Any Revenue Growth Forecasted For Baozun?

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

Retrospectively, the last year delivered a frustrating 4.8% decrease to the company's top line. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should generate growth of 7.0% per year as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 14% per annum, which is noticeably more attractive.

With this information, we can see why Baozun is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Baozun's P/S

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Baozun maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for Baozun that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.