QYOU Media Inc.'s (CVE:QYOU) Earnings Haven't Escaped The Attention Of Investors

When close to half the companies in the Media industry in Canada have price-to-sales ratios (or "P/S") below 0.8x, you may consider QYOU Media Inc. (CVE:QYOU) as a stock to potentially avoid with its 1.4x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for QYOU Media

What Does QYOU Media's P/S Mean For Shareholders?

QYOU Media certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on QYOU Media's earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like QYOU Media's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 60% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 3.5% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

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

What Does QYOU Media's P/S Mean For Investors?

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of QYOU Media revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

You should always think about risks. Case in point, we've spotted 4 warning signs for QYOU Media you should be aware of, and 2 of them are a bit unpleasant.

If these risks are making you reconsider your opinion on QYOU Media, 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.