Investors Interested In Kingsoft Corporation Limited's (HKG:3888) Revenues

When close to half the companies in the Entertainment industry in Hong Kong have price-to-sales ratios (or "P/S") below 1.7x, you may consider Kingsoft Corporation Limited (HKG:3888) as a stock to potentially avoid with its 3.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Kingsoft

How Has Kingsoft Performed Recently?

With revenue growth that's inferior to most other companies of late, Kingsoft has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Kingsoft?

Kingsoft's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. Still, lamentably revenue has fallen 11% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 18% per annum over the next three years. That's shaping up to be materially higher than the 5.2% each year growth forecast for the broader industry.

In light of this, it's understandable that Kingsoft's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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.

We've established that Kingsoft maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Entertainment industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Kingsoft you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.