What Beijing Baination Pictures Co.,Ltd.'s (SZSE:300291) 26% Share Price Gain Is Not Telling You

Despite an already strong run, Beijing Baination Pictures Co.,Ltd. (SZSE:300291) shares have been powering on, with a gain of 26% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 25% over that time.

Even after such a large jump in price, it's still not a stretch to say that Beijing Baination PicturesLtd's price-to-sales (or "P/S") ratio of 6x right now seems quite "middle-of-the-road" compared to the Entertainment industry in China, where the median P/S ratio is around 7.2x. 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.

See our latest analysis for Beijing Baination PicturesLtd

What Does Beijing Baination PicturesLtd's Recent Performance Look Like?

Recent times have been quite advantageous for Beijing Baination PicturesLtd as its revenue has been rising very briskly. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. Those who are bullish on Beijing Baination PicturesLtd will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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 Beijing Baination PicturesLtd's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Beijing Baination PicturesLtd would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 108% last year. As a result, it also grew revenue by 23% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 33% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Beijing Baination PicturesLtd's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Beijing Baination PicturesLtd's P/S

Beijing Baination PicturesLtd's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Beijing Baination PicturesLtd revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Beijing Baination PicturesLtd with six simple checks will allow you to discover any risks that could be an issue.

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.