The Star Entertainment Group Limited's (ASX:SGR) 28% Dip In Price Shows Sentiment Is Matching Revenues

Unfortunately for some shareholders, the The Star Entertainment Group Limited (ASX:SGR) share price has dived 28% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 63% share price decline.

Following the heavy fall in price, given about half the companies operating in Australia's Hospitality industry have price-to-sales ratios (or "P/S") above 1.5x, you may consider Star Entertainment Group as an attractive investment with its 0.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Star Entertainment Group

What Does Star Entertainment Group's P/S Mean For Shareholders?

Star Entertainment Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

Do Revenue Forecasts Match The Low P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 10% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.6% overall rise in revenue. 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.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 6.0% each year as estimated by the eight analysts watching the company. That's not great when the rest of the industry is expected to grow by 4.9% each year.

With this information, we are not surprised that Star Entertainment Group is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Star Entertainment Group's P/S

Star Entertainment Group's P/S has taken a dip along with its share price. 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 Star Entertainment Group's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. As other companies in the industry are forecasting revenue growth, Star Entertainment Group's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Star Entertainment Group (1 is a bit unpleasant!) that you need to be mindful of.

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

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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.