Baozun Inc.'s (NASDAQ:BZUN) Share Price Boosted 30% But Its Business Prospects Need A Lift Too

The Baozun Inc. (NASDAQ:BZUN) share price has done very well over the last month, posting an excellent gain of 30%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.

Although its price has surged higher, Baozun's price-to-sales (or "P/S") ratio of 0.2x might still 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 0.9x 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 Has Baozun Performed Recently?

With revenue growth that's inferior to most other companies of late, Baozun has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Baozun's Revenue Growth Trending?

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 decent 4.9% gain to the company's revenues. However, due to its less than impressive performance prior to this period, revenue growth is practically non-existent over the last three years overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 4.9% each year during the coming three years according to the ten analysts following the company. With the industry predicted to deliver 13% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Baozun's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

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

The latest share price surge wasn't enough to lift Baozun's P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the 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. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware Baozun is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of Baozun's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.