Some Confidence Is Lacking In Raj Television Network Limited (NSE:RAJTV) As Shares Slide 30%

To the annoyance of some shareholders, Raj Television Network Limited (NSE:RAJTV) shares are down a considerable 30% in the last month, which continues a horrid run for the company. Indeed, the recent drop has reduced its annual gain to a relatively sedate 9.9% over the last twelve months.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Raj Television Network's P/S ratio of 2.6x, since the median price-to-sales (or "P/S") ratio for the Media industry in India is also close to 2.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Raj Television Network

What Does Raj Television Network's P/S Mean For Shareholders?

The revenue growth achieved at Raj Television Network over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

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 Raj Television Network's earnings, revenue and cash flow.

How Is Raj Television Network's Revenue Growth Trending?

In order to justify its P/S ratio, Raj Television Network would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.6%. The latest three year period has also seen a 28% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 12% shows it's noticeably less attractive.

With this information, we find it interesting that Raj Television Network is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Raj Television Network's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Raj Television Network looks to be in line with the rest of the Media industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Raj Television Network revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

You need to take note of risks, for example - Raj Television Network has 3 warning signs (and 1 which can't be ignored) we think you should know about.

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.