BGMC International Limited (HKG:1693) shares have had a really impressive month, gaining 52% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 61% in the last year.

Even after such a large jump in price, there still wouldn't be many who think BGMC International's price-to-sales (or "P/S") ratio of 0.8x is worth a mention when the median P/S in Hong Kong's Construction industry is similar at about 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for BGMC International

What Does BGMC International's Recent Performance Look Like?

As an illustration, revenue has deteriorated at BGMC International over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For BGMC International?

There's an inherent assumption that a company should be matching the industry for P/S ratios like BGMC International's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 67% decrease to the company's top line. As a result, revenue from three years ago have also fallen 67% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

In contrast to the company, the rest of the industry is expected to grow by 12% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

In light of this, it's somewhat alarming that BGMC International's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What Does BGMC International's P/S Mean For Investors?

BGMC International's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 find it unexpected that BGMC International trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

And what about other risks? Every company has them, and we've spotted 2 warning signs for BGMC International you should know about.

If you're unsure about the strength of BGMC International'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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