AMC Networks Inc.'s (NASDAQ:AMCX) Shares Bounce 64% But Its Business Still Trails The Industry

AMC Networks Inc. (NASDAQ:AMCX) shares have had a really impressive month, gaining 64% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 42%.

In spite of the firm bounce in price, it would still be understandable if you think AMC Networks is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.3x, considering almost half the companies in the United States' Media industry have P/S ratios above 1.1x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for AMC Networks

How Has AMC Networks Performed Recently?

AMC Networks hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

How Is AMC Networks' Revenue Growth Trending?

In order to justify its P/S ratio, AMC Networks would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 16%. As a result, revenue from three years ago have also fallen 6.5% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 3.2% per year during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 4.9% growth per year, that's a disappointing outcome.

In light of this, it's understandable that AMC Networks' P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Bottom Line On AMC Networks' P/S

The latest share price surge wasn't enough to lift AMC Networks' P/S close to the industry median. 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.

It's clear to see that AMC Networks maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, AMC Networks' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

There are also other vital risk factors to consider and we've discovered 4 warning signs for AMC Networks (1 is a bit concerning!) that you should be aware of before investing here.

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.