What Star Media Group Berhad's (KLSE:STAR) P/S Is Not Telling You

It's not a stretch to say that Star Media Group Berhad's (KLSE:STAR) price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" for companies in the Media industry in Malaysia, where the median P/S ratio is around 0.9x. 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.

Check out our latest analysis for Star Media Group Berhad

How Has Star Media Group Berhad Performed Recently?

Recent times have been pleasing for Star Media Group Berhad as its revenue has risen in spite of the industry's average revenue going into reverse. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. 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 Star Media Group Berhad will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Star Media Group Berhad?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Star Media Group Berhad's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. This was backed up an excellent period prior to see revenue up by 32% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 0.09% as estimated by the three analysts watching the company. That's not great when the rest of the industry is expected to grow by 0.6%.

In light of this, it's somewhat alarming that Star Media Group Berhad's P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does Star Media Group Berhad's P/S Mean For Investors?

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.

Our check of Star Media Group Berhad's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Star Media Group Berhad (at least 2 which are potentially serious), and understanding these should be part of your investment process.

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.