Network18 Media & Investments Limited (NSE:NETWORK18) Stock's 26% Dive Might Signal An Opportunity But It Requires Some Scrutiny

Network18 Media & Investments Limited (NSE:NETWORK18) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 52% loss during that time.

Following the heavy fall in price, Network18 Media & Investments may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1x, considering almost half of all companies in the Media industry in India have P/S ratios greater than 2x and even P/S higher than 5x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Network18 Media & Investments

How Has Network18 Media & Investments Performed Recently?

Revenue has risen at a steady rate over the last year for Network18 Media & Investments, which is generally not a bad outcome. One possibility is that the P/S ratio is low because investors think this good revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Network18 Media & Investments will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Network18 Media & Investments' earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Network18 Media & Investments?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Network18 Media & Investments' to be considered reasonable.

Retrospectively, the last year delivered a decent 4.6% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 54% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Comparing that to the industry, which is only predicted to deliver 13% 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 Network18 Media & Investments 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 Final Word

The southerly movements of Network18 Media & Investments' shares means its P/S is now sitting at a pretty low level. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We're very surprised to see Network18 Media & Investments 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. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

It is also worth noting that we have found 3 warning signs for Network18 Media & Investments that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.