Subdued Growth No Barrier To Alibaba Pictures Group Limited's (HKG:1060) Price

When you see that almost half of the companies in the Entertainment industry in Hong Kong have price-to-sales ratios (or "P/S") below 1.7x, Alibaba Pictures Group Limited (HKG:1060) looks to be giving off some sell signals with its 2.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Alibaba Pictures Group

What Does Alibaba Pictures Group's Recent Performance Look Like?

Recent times haven't been great for Alibaba Pictures Group as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Alibaba Pictures Group would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 44% gain to the company's top line. The latest three year period has also seen an excellent 76% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 16% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 18% per annum, which is noticeably more attractive.

In light of this, it's alarming that Alibaba Pictures Group's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Alibaba Pictures Group's P/S?

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.

It comes as a surprise to see Alibaba Pictures Group trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Alibaba Pictures Group that you should be aware of.

If these risks are making you reconsider your opinion on Alibaba Pictures Group, 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com