Improved Revenues Required Before tinyBuild, Inc. (LON:TBLD) Stock's 66% Jump Looks Justified

tinyBuild, Inc. (LON:TBLD) shareholders would be excited to see that the share price has had a great month, posting a 66% gain and recovering from prior weakness. The annual gain comes to 126% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, given about half the companies operating in the United Kingdom's Entertainment industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider tinyBuild as an attractive investment with its 0.7x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for tinyBuild

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

While the industry has experienced revenue growth lately, tinyBuild's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think tinyBuild's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Revenue Growth Forecasted For tinyBuild?

tinyBuild's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 30% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 6.5% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 1.2% during the coming year according to the five analysts following the company. With the industry predicted to deliver 8.9% growth, the company is positioned for a weaker revenue result.

With this information, we can see why tinyBuild is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The latest share price surge wasn't enough to lift tinyBuild's P/S close to the industry median. 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.

We've established that tinyBuild maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 5 warning signs for tinyBuild (2 are potentially serious!) that you should be aware of before investing here.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.