Bilibili Inc. (NASDAQ:BILI) Might Not Be As Mispriced As It Looks

With a median price-to-sales (or "P/S") ratio of close to 1.2x in the Entertainment industry in the United States, you could be forgiven for feeling indifferent about Bilibili Inc.'s (NASDAQ:BILI) P/S ratio of 1.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Bilibili

What Does Bilibili's P/S Mean For Shareholders?

Recent times haven't been great for Bilibili as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

In order to justify its P/S ratio, Bilibili would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.6%. Pleasingly, revenue has also lifted 120% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 15% per annum over the next three years. With the industry only predicted to deliver 9.9% each year, the company is positioned for a stronger revenue result.

In light of this, it's curious that Bilibili's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

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.

Despite enticing revenue growth figures that outpace the industry, Bilibili's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Bilibili is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Bilibili, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.