What Maoyan Entertainment's (HKG:1896) P/S Is Not Telling You

With a median price-to-sales (or "P/S") ratio of close to 1.8x in the Entertainment industry in Hong Kong, you could be forgiven for feeling indifferent about Maoyan Entertainment's (HKG:1896) P/S ratio of 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.

View our latest analysis for Maoyan Entertainment

What Does Maoyan Entertainment's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Maoyan Entertainment has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is Maoyan Entertainment's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 105% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 248% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 6.5% per year over the next three years. With the industry predicted to deliver 19% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's curious that Maoyan Entertainment's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

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 look at the analysts forecasts of Maoyan Entertainment's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Maoyan Entertainment with six simple checks.

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.

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