11 bit studios S.A. (WSE:11B) Shares Slammed 47% But Getting In Cheap Might Be Difficult Regardless

The 11 bit studios S.A. (WSE:11B) share price has fared very poorly over the last month, falling by a substantial 47%. For any long-term shareholders, the last month ends a year to forget by locking in a 52% share price decline.

In spite of the heavy fall in price, 11 bit studios' price-to-sales (or "P/S") ratio of 13.9x might still make it look like a strong sell right now compared to other companies in the Entertainment industry in Poland, where around half of the companies have P/S ratios below 3.9x and even P/S below 1.4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for 11 bit studios

What Does 11 bit studios' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, 11 bit studios has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on 11 bit studios.

Is There Enough Revenue Growth Forecasted For 11 bit studios?

11 bit studios' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered a decent 9.5% gain to the company's revenues. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 20% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 55% per annum during the coming three years according to the six analysts following the company. That's shaping up to be materially higher than the 15% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why 11 bit studios' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does 11 bit studios' P/S Mean For Investors?

Even after such a strong price drop, 11 bit studios' P/S still exceeds the industry median significantly. 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 we suspected, our examination of 11 bit studios' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for 11 bit studios that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.