Investors Still Aren't Entirely Convinced By Enthusiast Gaming Holdings Inc.'s (TSE:EGLX) Revenues Despite 60% Price Jump

Enthusiast Gaming Holdings Inc. (TSE:EGLX) shares have had a really impressive month, gaining 60% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 30% in the last twelve months.

In spite of the firm bounce in price, Enthusiast Gaming Holdings' price-to-sales (or "P/S") ratio of 0.2x might still make it look like a buy right now compared to the Interactive Media and Services industry in Canada, where around half of the companies have P/S ratios above 0.8x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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See our latest analysis for Enthusiast Gaming Holdings

How Has Enthusiast Gaming Holdings Performed Recently?

While the industry has experienced revenue growth lately, Enthusiast Gaming Holdings' revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Enthusiast Gaming Holdings would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 61%. As a result, revenue from three years ago have also fallen 67% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the lone analyst following the company. With the industry only predicted to deliver 12%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Enthusiast Gaming Holdings' P/S sits behind most of its industry peers. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Enthusiast Gaming Holdings' P/S?

Despite Enthusiast Gaming Holdings' share price climbing recently, its P/S still lags most other companies. 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.

A look at Enthusiast Gaming Holdings' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Enthusiast Gaming Holdings (3 make us uncomfortable) you should be aware of.

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.