Pantaflix AG (ETR:PAL) Looks Just Right With A 51% Price Jump

Pantaflix AG (ETR:PAL) shares have continued their recent momentum with a 51% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 25% in the last year.

After such a large jump in price, given close to half the companies operating in Germany's Entertainment industry have price-to-sales ratios (or "P/S") below 0.5x, you may consider Pantaflix as a stock to potentially avoid with its 1.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for Pantaflix

What Does Pantaflix's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Pantaflix's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as Pantaflix's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a frustrating 54% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 31% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the sole analyst watching the company. That's shaping up to be materially higher than the 2.1% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Pantaflix's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Pantaflix's P/S?

Pantaflix shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

We've established that Pantaflix 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. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Pantaflix has 3 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Pantaflix, 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.