PlaySide Studios Limited's (ASX:PLY) 51% Share Price Plunge Could Signal Some Risk

PlaySide Studios Limited (ASX:PLY) shareholders that were waiting for something to happen have been dealt a blow with a 51% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 72% loss during that time.

In spite of the heavy fall in price, it's still not a stretch to say that PlaySide Studios' price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" compared to the Entertainment industry in Australia, where the median P/S ratio is around 1.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for PlaySide Studios

How Has PlaySide Studios Performed Recently?

Recent times have been advantageous for PlaySide Studios as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. 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 not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on PlaySide Studios will help you uncover what's on the horizon.

How Is PlaySide Studios' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like PlaySide Studios' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 68% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 7.7% per year during the coming three years according to the three analysts following the company. With the industry predicted to deliver 11% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's curious that PlaySide Studios' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does PlaySide Studios' P/S Mean For Investors?

PlaySide Studios' plummeting stock price has brought its P/S back to a similar region as the rest of the 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.

Given that PlaySide Studios' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

You should always think about risks. Case in point, we've spotted 3 warning signs for PlaySide Studios you should be aware of, and 1 of them shouldn't be ignored.

If you're unsure about the strength of PlaySide Studios' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.