Unfortunately for some shareholders, the BT Brands, Inc. (NASDAQ:BTBD) share price has dived 27% in the last thirty days, prolonging recent pain.    The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.  

Since its price has dipped substantially, given about half the companies operating in the United States' Hospitality industry have price-to-sales ratios (or "P/S") above 1.2x, you may consider BT Brands as an attractive investment with its 0.6x P/S ratio.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.  

NasdaqCM:BTBD Price to Sales Ratio vs Industry May 14th 2024

How BT Brands Has Been Performing

BT Brands has been doing a good job lately as it's been growing revenue at a solid pace.   Perhaps the market is expecting this acceptable revenue performance to take a 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.    

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on BT Brands' earnings, revenue and cash flow.  

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 BT Brands' to be considered reasonable.  

If we review the last year of revenue growth, the company posted a worthy increase of 12%.   This was backed up an excellent period prior to see revenue up by 73% in total over the last three years.  Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.  

Comparing that to the industry, which is only predicted to deliver 13% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's peculiar that BT Brands' P/S sits below the majority of other companies.  Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.  

What We Can Learn From BT Brands' P/S?

BT Brands' P/S has taken a dip along with its share price.      While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of BT Brands revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations.  When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio.  While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.    

You should always think about risks. Case in point, we've spotted   3 warning signs for BT Brands  you should be aware of, and 2 of them are significant.  

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.