What You Can Learn From Toplofikatsia-Burgas AD's (BUL:TPLB) P/S After Its 45% Share Price Crash

Toplofikatsia-Burgas AD (BUL:TPLB) shareholders won't be pleased to see that the share price has had a very rough month, dropping 45% and undoing the prior period's positive performance. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

In spite of the heavy fall in price, it's still not a stretch to say that Toplofikatsia-Burgas AD's price-to-sales (or "P/S") ratio of 0.5x right now seems quite "middle-of-the-road" compared to the Electric Utilities industry in Bulgaria, where the median P/S ratio is around 0.9x. 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.

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View our latest analysis for Toplofikatsia-Burgas AD

What Does Toplofikatsia-Burgas AD's Recent Performance Look Like?

For example, consider that Toplofikatsia-Burgas AD's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Toplofikatsia-Burgas AD will help you shine a light on its historical performance.

How Is Toplofikatsia-Burgas AD's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 13% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is predicted to deliver 4.1% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

In light of this, it's understandable that Toplofikatsia-Burgas AD's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Toplofikatsia-Burgas AD's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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've seen, Toplofikatsia-Burgas AD's three-year revenue trends seem to be contributing to its P/S, given they look similar to current industry expectations. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Toplofikatsia-Burgas AD (1 can't be ignored) you should be aware of.

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.