Archosaur Games Inc. (HKG:9990) Soars 30% But It's A Story Of Risk Vs Reward

Despite an already strong run, Archosaur Games Inc. (HKG:9990) shares have been powering on, with a gain of 30% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 42% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Archosaur Games' P/S ratio of 1.4x, since the median price-to-sales (or "P/S") ratio for the Entertainment industry in Hong Kong is also close to 1.3x. 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.

See our latest analysis for Archosaur Games

What Does Archosaur Games' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Archosaur Games has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Archosaur Games would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 44% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 19% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 29% during the coming year according to the lone analyst following the company. That's shaping up to be materially higher than the 9.6% growth forecast for the broader industry.

With this information, we find it interesting that Archosaur Games is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Archosaur Games' P/S Mean For Investors?

Archosaur Games' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Looking at Archosaur Games' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Archosaur Games has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Archosaur Games, 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.