Those holding BlueFocus Intelligent Communications Group Co., Ltd. (SZSE:300058) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Taking a wider view, although not as strong as the last month, the full year gain of 25% is also fairly reasonable.

Although its price has surged higher, BlueFocus Intelligent Communications Group's price-to-sales (or "P/S") ratio of 0.4x might still make it look like a strong buy right now compared to the wider Media industry in China, where around half of the companies have P/S ratios above 2.7x and even P/S above 6x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

What Does BlueFocus Intelligent Communications Group's P/S Mean For Shareholders?

Recent times have been advantageous for BlueFocus Intelligent Communications Group as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to 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.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like BlueFocus Intelligent Communications Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. Revenue has also lifted 25% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 9.9% as estimated by the four analysts watching the company. That's shaping up to be materially lower than the 20% growth forecast for the broader industry.

With this information, we can see why BlueFocus Intelligent Communications Group 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.

What Does BlueFocus Intelligent Communications Group's P/S Mean For Investors?

Shares in BlueFocus Intelligent Communications Group have risen appreciably however, its P/S is still subdued. 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.

As expected, our analysis of BlueFocus Intelligent Communications Group's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 1 warning sign for BlueFocus Intelligent Communications Group that we have uncovered.

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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