The Market Doesn't Like What It Sees From Enthusiast Gaming Holdings Inc.'s (TSE:EGLX) Revenues Yet As Shares Tumble 28%

To the annoyance of some shareholders, Enthusiast Gaming Holdings Inc. (TSE:EGLX) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 82% share price decline.

After such a large drop in price, Enthusiast Gaming Holdings may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.1x, considering almost half of all companies in the Interactive Media and Services industry in Canada have P/S ratios greater than 1.2x and even P/S higher than 5x aren't out of the ordinary. 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 Enthusiast Gaming Holdings

What Does Enthusiast Gaming Holdings' P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Enthusiast Gaming Holdings' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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.

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

Is There Any Revenue Growth Forecasted For Enthusiast Gaming Holdings?

Enthusiast Gaming Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 10%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, despite the drawbacks experienced in the last 12 months. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Looking ahead now, revenue is anticipated to climb by 9.5% per year during the coming three years according to the seven analysts following the company. That's shaping up to be materially lower than the 12% per year growth forecast for the broader industry.

With this in consideration, its clear as to why Enthusiast Gaming Holdings' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Enthusiast Gaming Holdings' recently weak share price has pulled its P/S back below other Interactive Media and Services companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Enthusiast Gaming Holdings maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you settle on your opinion, we've discovered 4 warning signs for Enthusiast Gaming Holdings that you should be aware of.

If you're unsure about the strength of Enthusiast Gaming Holdings' 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.