Subdued Growth No Barrier To Hasbro, Inc. (NASDAQ:HAS) With Shares Advancing 28%

Hasbro, Inc. (NASDAQ:HAS) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Looking further back, the 11% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, when almost half of the companies in the United States' Leisure industry have price-to-sales ratios (or "P/S") below 1x, you may consider Hasbro as a stock probably not worth researching with its 2.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

We've discovered 2 warning signs about Hasbro. View them for free.

See our latest analysis for Hasbro

How Hasbro Has Been Performing

With revenue that's retreating more than the industry's average of late, Hasbro has been very sluggish. It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Hasbro's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Hasbro's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 10% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 34% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 2.6% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 2.8% each year, which is not materially different.

With this information, we find it interesting that Hasbro is trading at a high P/S compared to the industry. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Final Word

The large bounce in Hasbro's shares has lifted the company's P/S handsomely. 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.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Hasbro currently trades on a higher than expected P/S. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

It is also worth noting that we have found 2 warning signs for Hasbro that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.