There's No Escaping tinyBuild, Inc.'s (LON:TBLD) Muted Revenues

tinyBuild, Inc.'s (LON:TBLD) price-to-sales (or "P/S") ratio of 0.5x might make it look like a buy right now compared to the Entertainment industry in the United Kingdom, where around half of the companies have P/S ratios above 1.4x and even P/S above 4x are quite common. 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

How Has tinyBuild Performed Recently?

tinyBuild hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on tinyBuild will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For tinyBuild?

There's an inherent assumption that a company should underperform the industry for P/S ratios like tinyBuild's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's top line. Regardless, revenue has managed to lift by a handy 19% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next three years should generate growth of 4.3% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 8.9% each year, which is noticeably more attractive.

With this in consideration, its clear as to why tinyBuild's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the 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. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for tinyBuild (1 is a bit concerning) you should be aware of.

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.