With A 29% Price Drop For BETR Entertainment Limited (ASX:BBT) You'll Still Get What You Pay For

BETR Entertainment Limited (ASX:BBT) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 53%, which is great even in a bull market.

Even after such a large drop in price, given close to half the companies operating in Australia's Hospitality industry have price-to-sales ratios (or "P/S") below 1.3x, you may still consider BETR Entertainment as a stock to potentially avoid with its 3.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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View our latest analysis for BETR Entertainment

How Has BETR Entertainment Performed Recently?

With revenue growth that's superior to most other companies of late, BETR Entertainment has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on BETR Entertainment.

How Is BETR Entertainment's Revenue Growth Trending?

BETR Entertainment's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered an exceptional 76% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 115% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 59% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 4.1% growth forecast for the broader industry.

With this in mind, it's not hard to understand why BETR Entertainment's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

There's still some elevation in BETR Entertainment's P/S, even if the same can't be said for its share price recently. 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.

As we suspected, our examination of BETR Entertainment's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for BETR Entertainment that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.