PlaySide Studios Limited's (ASX:PLY) P/S Still Appears To Be Reasonable

When you see that almost half of the companies in the Entertainment industry in Australia have price-to-sales ratios (or "P/S") below 1.7x, PlaySide Studios Limited (ASX:PLY) looks to be giving off strong sell signals with its 5.3x 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 so lofty.

View our latest analysis for PlaySide Studios

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

Recent times have been advantageous for PlaySide Studios as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is PlaySide Studios' Revenue Growth Trending?

PlaySide Studios' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 60% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 16% per year over the next three years. That's shaping up to be materially higher than the 10.0% per annum growth forecast for the broader industry.

In light of this, it's understandable that PlaySide Studios' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into PlaySide Studios shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for PlaySide Studios with six simple checks.

If these risks are making you reconsider your opinion on PlaySide Studios, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com