It's Down 25% But Mukta Arts Limited (NSE:MUKTAARTS) Could Be Riskier Than It Looks

The Mukta Arts Limited (NSE:MUKTAARTS) share price has fared very poorly over the last month, falling by a substantial 25%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 22% in that time.

Since its price has dipped substantially, Mukta Arts may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.9x, since almost half of all companies in the Entertainment industry in India have P/S ratios greater than 4.8x and even P/S higher than 21x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Mukta Arts

What Does Mukta Arts' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Mukta Arts over the last year, which is not ideal at all. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Mukta Arts will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Mukta Arts will help you shine a light on its historical performance.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as Mukta Arts' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered a frustrating 15% decrease to the company's top line. Even so, admirably revenue has lifted 115% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Comparing that to the industry, which is only predicted to deliver 21% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it odd that Mukta Arts is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Mukta Arts' P/S

Mukta Arts' P/S looks about as weak as its stock price lately. 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.

We're very surprised to see Mukta Arts currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Mukta Arts (2 are a bit concerning) you should be aware of.

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.