Stock Analysis

Investor Optimism Abounds WildBrain Ltd. (TSE:WILD) But Growth Is Lacking

TSX:WILD
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It's not a stretch to say that WildBrain Ltd.'s (TSE:WILD) price-to-sales (or "P/S") ratio of 0.6x seems quite "middle-of-the-road" for Entertainment companies in Canada, seeing as it matches the P/S ratio of the wider industry. 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.

Check out our latest analysis for WildBrain

ps-multiple-vs-industry
TSX:WILD Price to Sales Ratio vs Industry June 30th 2023

How Has WildBrain Performed Recently?

Recent times haven't been great for WildBrain as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Some Revenue Growth Forecasted For WildBrain?

In order to justify its P/S ratio, WildBrain would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Fortunately, a few good years before that means that it was still able to grow revenue by 18% in total over the last three years. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 7.7% during the coming year according to the six analysts following the company. That's shaping up to be materially lower than the 25% growth forecast for the broader industry.

With this information, we find it interesting that WildBrain is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

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.

Given that WildBrain's 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for WildBrain that you should be aware of.

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

Valuation is complex, but we're helping make it simple.

Find out whether WildBrain is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.