Despite an already strong run, BGSF, Inc. (NYSE:BGSF) shares have been powering on, with a gain of 35% in the last thirty days. Unfortunately, despite the strong performance over the last month, the full year gain of 3.7% isn't as attractive.

Even after such a large jump in price, it would still be understandable if you think BGSF is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.3x, considering almost half the companies in the United States' Professional Services industry have P/S ratios above 1.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does BGSF's P/S Mean For Shareholders?

Recent times have been advantageous for BGSF 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 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.

Keen to find out how analysts think BGSF's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

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

If we review the last year of revenue growth, the company posted a terrific increase of 28%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 2.9% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 65% as estimated by the lone analyst watching the company. Meanwhile, the broader industry is forecast to expand by 7.0%, which paints a poor picture.

In light of this, it's understandable that BGSF's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From BGSF's P/S?

Despite BGSF's share price climbing recently, its P/S still lags most other companies. 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 suspected, our examination of BGSF's analyst forecasts revealed that its outlook for shrinking revenue is contributing 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. It's hard to see the share price rising strongly in the near future under these circumstances.

If these risks are making you reconsider your opinion on BGSF, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.