Take Care Before Jumping Onto Studio City International Holdings Limited (NYSE:MSC) Even Though It's 28% Cheaper

To the annoyance of some shareholders, Studio City International Holdings Limited (NYSE:MSC) shares are down a considerable 28% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 52% share price decline.

Since its price has dipped substantially, Studio City International Holdings' price-to-sales (or "P/S") ratio of 1x might make it look like a buy right now compared to the Hospitality industry in the United States, where around half of the companies have P/S ratios above 1.6x and even P/S above 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 limited.

See our latest analysis for Studio City International Holdings

What Does Studio City International Holdings' Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Studio City International Holdings has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Studio City International Holdings will help you shine a light on its historical performance.

How Is Studio City International Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Studio City International Holdings' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 43% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

When compared to the industry's one-year growth forecast of 15%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that Studio City International Holdings' P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From Studio City International Holdings' P/S?

Studio City International Holdings' P/S has taken a dip along with its share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We're very surprised to see Studio City International Holdings currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

It is also worth noting that we have found 1 warning sign for Studio City International Holdings that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.