The share price of Kanzhun Limited (NASDAQ:BZ) continues to reflect investors’ opinion despite a 25% drop

Unfortunately for some shareholders Kanzhun Limited (NASDAQ:BZ) stock price has fallen 25% over the past 30 days, extending recent losses. The decline over the past 30 days capped off a rough year for shareholders, with the stock price falling 22% during that time.

Despite the sharp price drop, and given that roughly half of the companies in the U.S. interactive media and services industry have a price-to-sales (or “P/S”) ratio of less than 1.4, you should still consider Kanzhun, with its P/S ratio of 6.7, a stock to avoid entirely. However, it’s not wise to simply take the P/S at face value, as there may be an explanation for why it’s so high.

Check out our latest analysis for Kanzhun

What is Kanzhun’s recent performance?

The recent past has been beneficial for Kanzhun as its revenue has grown faster than most other companies. It seems that the market expects this trend to continue in the future, hence the elevated P/S ratio. That’s to be hoped, otherwise you’re paying a pretty high price for no particular reason.

Do you want the full picture of analyst estimates for the company? Then our free The Kanzhun report will help you figure out what’s on the horizon.

Do the sales forecasts correspond to the high P/S ratio?

There is a fundamental assumption that a company must significantly outperform its industry for P/S ratios like Kanzhun’s to be considered reasonable.

First, if we look back, we see that the company managed to grow its revenue by an impressive 37% last year. Due to the strong recent performance, it managed to grow revenue by 160% in total over the last three years. Accordingly, shareholders would definitely have welcomed these medium-term revenue growth rates.

As for the outlook, the next three years are expected to bring growth of 23% per year, according to analysts who cover the company. This is likely to be significantly higher than the 12% growth per year forecast for the industry as a whole.

With this in mind, it is understandable that Kanzhun’s price-to-earnings ratio is better than most other companies. It seems that most investors expect this strong future growth and are willing to pay more for the stock.

What can we learn from Kanzhun’s P/S?

Even after such a sharp price drop, Kanzhun’s P/S is still well above the industry average. Generally, we prefer to use the price-to-sales ratio only to determine what the market thinks about the overall health of a company.

We noted that Kanzhun maintains its high P/S ratio because its forecast revenue growth is expected to be higher than the rest of the interactive media and services industry. At this point, investors consider the potential for a revenue decline to be quite unlikely, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Another important area for risk analysis is the company’s balance sheet. free Using Kanzhun’s balance sheet analysis with six simple checks, you can identify any risks that could pose a problem.

If those Risks make you reconsider your opinion about Kanzhunexplore our interactive list of high-quality stocks to get a sense of what else is out there.

Do you have feedback on this article? Are you concerned about the content? Get in touch directly from us. Alternatively, send an email to editorial-team (at) simplywallst.com.

This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.