Yahoo Finance Investors Aren't Entirely Convinced By Beamtree Holdings Limited's (ASX:BMT) Revenues
Beamtree Holdings Limited's (ASX:BMT) price-to-sales (or "P/S") ratio of 3.6x might make it look like a buy right now compared to the Healthcare Services industry in Australia, where around half of the companies have P/S ratios above 5.1x and even P/S above 10x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
View our latest analysis for Beamtree Holdings
How Beamtree Holdings Has Been Performing
Recent times have been advantageous for Beamtree Holdings as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Want the full picture on analyst estimates for the company? Then our free report on Beamtree Holdings will help you uncover what's on the horizon.
Do Revenue Forecasts Match The Low P/S Ratio?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Beamtree Holdings' to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 69%. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.
Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 30% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 22% per year, which is noticeably less attractive.
In light of this, it's peculiar that Beamtree Holdings' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Bottom Line On Beamtree Holdings' 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.
To us, it seems Beamtree Holdings currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Beamtree Holdings, and understanding them should be part of your investment process.
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.
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