Take Care Before Jumping Onto Sabio Holdings Inc. (CVE:SBIO) Even Though It's 29% Cheaper

Sabio Holdings Inc. (CVE:SBIO) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 73% share price decline.

In spite of the heavy fall in price, it's still not a stretch to say that Sabio Holdings' price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Media industry in Canada, seeing as it matches the P/S ratio of the wider industry. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Sabio Holdings

How Sabio Holdings Has Been Performing

Sabio Holdings has been struggling lately as its revenue has declined faster than most other companies. It might be that many expect the dismal revenue performance to revert back to industry averages soon, which has kept the P/S from falling. You'd much rather the company improve its revenue if you still believe in the business. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Sabio Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 173% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 31% as estimated by the sole analyst watching the company. Meanwhile, the rest of the industry is forecast to only expand by 4.1%, which is noticeably less attractive.

With this in consideration, we find it intriguing that Sabio Holdings' P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Following Sabio Holdings' share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Looking at Sabio Holdings' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

We don't want to rain on the parade too much, but we did also find 6 warning signs for Sabio Holdings (4 are concerning!) that you need to be mindful of.

If you're unsure about the strength of Sabio 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.