Wanda Film Holding Co., Ltd.'s (SZSE:002739) Price Is Right But Growth Is Lacking After Shares Rocket 27%

Wanda Film Holding Co., Ltd. (SZSE:002739) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 7.3% over the last year.

Even after such a large jump in price, Wanda Film Holding may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.9x, considering almost half of all companies in the Entertainment industry in China have P/S ratios greater than 5.6x and even P/S higher than 11x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

Check out our latest analysis for Wanda Film Holding

How Has Wanda Film Holding Performed Recently?

Wanda Film Holding's revenue growth of late has been pretty similar to most other companies. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. Those who are bullish on Wanda Film Holding will be hoping that this isn't the case.

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

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Wanda Film Holding's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. Revenue has also lifted 23% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 14% as estimated by the eleven analysts watching the company. That's shaping up to be materially lower than the 28% growth forecast for the broader industry.

In light of this, it's understandable that Wanda Film Holding's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Wanda Film Holding's P/S?

Even after such a strong price move, Wanda Film Holding's P/S still trails the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Wanda Film Holding's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Wanda Film Holding that we have uncovered.

If you're unsure about the strength of Wanda Film Holding's 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.