Why Investors Shouldn't Be Surprised By Bilibili Inc.'s (NASDAQ:BILI) 32% Share Price Surge

Bilibili Inc. (NASDAQ:BILI) shares have continued their recent momentum with a 32% gain in the last month alone. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.

After such a large jump in price, given close to half the companies operating in the United States' Entertainment industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Bilibili as a stock to potentially avoid with its 2.4x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Bilibili

How Bilibili Has Been Performing

Bilibili could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

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

How Is Bilibili's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 5.5% last year. The latest three year period has also seen an excellent 70% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 14% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 10% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why Bilibili's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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

Our look into Bilibili shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Bilibili that you should be aware of.

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.

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