Huayi Brothers Media Corporation's (SZSE:300027) Stock Retreats 27% But Revenues Haven't Escaped The Attention Of Investors

Huayi Brothers Media Corporation (SZSE:300027) shares have had a horrible month, losing 27% after a relatively good period beforehand. Indeed, the recent drop has reduced its annual gain to a relatively sedate 9.0% over the last twelve months.

Even after such a large drop in price, you could still be forgiven for thinking Huayi Brothers Media is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 12x, considering almost half the companies in China's Entertainment industry have P/S ratios below 6.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Huayi Brothers Media

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

Recent times have been advantageous for Huayi Brothers Media as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. 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 Huayi Brothers Media will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Huayi Brothers Media?

Huayi Brothers Media's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 15% last year. Still, lamentably revenue has fallen 52% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 126% as estimated by the two analysts watching the company. With the industry only predicted to deliver 23%, the company is positioned for a stronger revenue result.

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

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

Huayi Brothers Media's shares may have suffered, but its P/S remains high. 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.

We've established that Huayi Brothers 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. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Huayi Brothers Media with six simple checks.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.