SAMG Entertainment Co., Ltd.'s (KOSDAQ:419530) 26% Share Price Plunge Could Signal Some Risk

SAMG Entertainment Co., Ltd. (KOSDAQ:419530) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Nonetheless, the last 30 days have barely left a scratch on the stock's annual performance, which is up a whopping 336%.

Even after such a large drop in price, when almost half of the companies in Korea's Entertainment industry have price-to-sales ratios (or "P/S") below 2.1x, you may still consider SAMG Entertainment as a stock probably not worth researching with its 3.3x 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.

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Check out our latest analysis for SAMG Entertainment

How SAMG Entertainment Has Been Performing

SAMG Entertainment certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, SAMG Entertainment would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 38%. The latest three year period has also seen an excellent 140% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 17% over the next year. Meanwhile, the rest of the industry is forecast to expand by 20%, which is noticeably more attractive.

With this information, we find it concerning that SAMG Entertainment is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

There's still some elevation in SAMG Entertainment's P/S, even if the same can't be said for its share price recently. 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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for SAMG Entertainment, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you take the next step, you should know about the 3 warning signs for SAMG Entertainment (2 are potentially serious!) that we have uncovered.

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.