Sentiment Still Eluding CMGE Technology Group Limited (HKG:302)

With a price-to-sales (or "P/S") ratio of 0.9x CMGE Technology Group Limited (HKG:302) may be sending bullish signals at the moment, given that almost half of all the Entertainment companies in Hong Kong have P/S ratios greater than 1.6x and even P/S higher than 4x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for CMGE Technology Group

What Does CMGE Technology Group's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, CMGE Technology Group has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

How Is CMGE Technology Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as CMGE Technology Group's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 6.4% overall from three years ago. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 19% each year as estimated by the five analysts watching the company. With the industry only predicted to deliver 5.6% per year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that CMGE Technology Group's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

To us, it seems CMGE Technology Group currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for CMGE Technology Group with six simple checks on some of these key factors.

If you're unsure about the strength of CMGE Technology Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.