Baozun Inc.'s (NASDAQ:BZUN) Shares Bounce 49% But Its Business Still Trails The Industry

Those holding Baozun Inc. (NASDAQ:BZUN) shares would be relieved that the share price has rebounded 49% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Notwithstanding the latest gain, the annual share price return of 6.4% isn't as impressive.

In spite of the firm bounce in price, Baozun may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.1x, considering almost half of all companies in the Multiline Retail industry in the United States have P/S ratios greater than 1x and even P/S higher than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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How Baozun Has Been Performing

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.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Baozun would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 6.9% 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. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 3.8% per year during the coming three years according to the seven analysts following the company. With the industry predicted to deliver 11% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Baozun is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

The latest share price surge wasn't enough to lift Baozun's P/S close to the industry median. 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.

As we suspected, our examination of Baozun's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Baozun with six simple checks will allow you to discover any risks that could be an issue.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.