When close to half the companies operating in the Entertainment industry in Korea have price-to-sales ratios (or "P/S") above 2x, you may consider CJ ENM CO., Ltd. (KOSDAQ:035760) as an attractive investment with its 0.3x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for CJ ENM
How Has CJ ENM Performed Recently?
Recent revenue growth for CJ ENM has been in line with the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on CJ ENM will be hoping that this isn't the case.
Keen to find out how analysts think CJ ENM's future stacks up against the industry? In that case, our free report is a great place to start.How Is CJ ENM's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as CJ ENM's is when the company's growth is on track to lag the industry.
Retrospectively, the last year delivered a decent 14% gain to the company's revenues. The latest three year period has also seen an excellent 34% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next year should generate growth of 2.7% as estimated by the analysts watching the company. With the industry predicted to deliver 20% growth, the company is positioned for a weaker revenue result.
In light of this, it's understandable that CJ ENM's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What Does CJ ENM's P/S Mean For Investors?
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.
As expected, our analysis of CJ ENM's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for CJ ENM with six simple checks will allow you to discover any risks that could be an issue.
If you're unsure about the strength of CJ ENM'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.