Maximum Entertainment AB (STO:MAXENT B) Looks Inexpensive After Falling 51% But Perhaps Not Attractive Enough

Maximum Entertainment AB (STO:MAXENT B) shares have had a horrible month, losing 51% after a relatively good period beforehand. For any long-term shareholders, the last month ends a year to forget by locking in a 78% share price decline.

Following the heavy fall in price, when close to half the companies operating in Sweden's Entertainment industry have price-to-sales ratios (or "P/S") above 0.6x, you may consider Maximum Entertainment as an enticing stock to check out with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Maximum Entertainment

How Maximum Entertainment Has Been Performing

Recent times haven't been great for Maximum Entertainment as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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

Maximum Entertainment's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.7%. While this performance is only fair, the company was still able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 2.5% per annum over the next three years. With the industry predicted to deliver 4.7% growth each year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Maximum Entertainment's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Maximum Entertainment's P/S

Maximum Entertainment's P/S has taken a dip along with its share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Maximum Entertainment's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 5 warning signs for Maximum Entertainment you should be aware of, and 1 of them is potentially serious.

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.