Positive Sentiment Still Eludes Pop Culture Group Co., Ltd (NASDAQ:CPOP) Following 36% Share Price Slump

Pop Culture Group Co., Ltd (NASDAQ:CPOP) shareholders that were waiting for something to happen have been dealt a blow with a 36% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 89% loss during that time.

Following the heavy fall in price, Pop Culture Group may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Entertainment industry in the United States have P/S ratios greater than 1.3x and even P/S higher than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Pop Culture Group

How Pop Culture Group Has Been Performing

Recent times have been quite advantageous for Pop Culture Group as its revenue has been rising very briskly. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Pop Culture Group will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Pop Culture Group's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Pop Culture Group?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Pop Culture Group's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 156%. The strong recent performance means it was also able to grow revenue by 86% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

With this information, we find it odd that Pop Culture Group is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Pop Culture Group's recently weak share price has pulled its P/S back below other Entertainment companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Pop Culture Group revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. 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.

Before you take the next step, you should know about the 4 warning signs for Pop Culture Group (2 are a bit unpleasant!) that we have uncovered.

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.