Investors Appear Satisfied With OverActive Media Corp.'s (CVE:OAM) Prospects As Shares Rocket 26%

OverActive Media Corp. (CVE:OAM) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 165% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given around half the companies in Canada's Entertainment industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider OverActive Media as a stock to avoid entirely with its 4.3x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for OverActive Media

How Has OverActive Media Performed Recently?

OverActive Media hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For OverActive Media?

In order to justify its P/S ratio, OverActive Media would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.0%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 84% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next year should generate growth of 45% as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 14% growth forecast for the broader industry.

With this in mind, it's not hard to understand why OverActive Media's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On OverActive Media's P/S

OverActive Media's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 OverActive Media maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Entertainment industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 4 warning signs for OverActive Media (3 are a bit concerning!) that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.