Revenues Not Telling The Story For Beijing Baination Pictures Co.,Ltd. (SZSE:300291) After Shares Rise 29%

Those holding Beijing Baination Pictures Co.,Ltd. (SZSE:300291) shares would be relieved that the share price has rebounded 29% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Taking a wider view, although not as strong as the last month, the full year gain of 19% is also fairly reasonable.

After such a large jump in price, Beijing Baination PicturesLtd may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 12.8x, since almost half of all companies in the Entertainment industry in China have P/S ratios under 6.8x and even P/S lower than 3x are not unusual. 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 Beijing Baination PicturesLtd

How Beijing Baination PicturesLtd Has Been Performing

For instance, Beijing Baination PicturesLtd's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Beijing Baination PicturesLtd will help you shine a light on its historical performance.

Is There Enough Revenue Growth Forecasted For Beijing Baination PicturesLtd?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 8.0%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 111% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 35% shows it's noticeably less attractive.

With this in mind, we find it worrying that Beijing Baination PicturesLtd's P/S exceeds that of its industry peers. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Beijing Baination PicturesLtd's P/S Mean For Investors?

Beijing Baination PicturesLtd's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

The fact that Beijing Baination PicturesLtd currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Beijing Baination PicturesLtd (of which 2 don't sit too well with us!) you should know about.

If these risks are making you reconsider your opinion on Beijing Baination PicturesLtd, 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.