CuriosityStream Inc.'s (NASDAQ:CURI) 42% Price Boost Is Out Of Tune With Revenues

Those holding CuriosityStream Inc. (NASDAQ:CURI) shares would be relieved that the share price has rebounded 42% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last 30 days were the cherry on top of the stock's 307% gain in the last year, which is nothing short of spectacular.

After such a large jump in price, when almost half of the companies in the United States' Entertainment industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider CuriosityStream as a stock probably not worth researching with its 2.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for CuriosityStream

How CuriosityStream Has Been Performing

While the industry has experienced revenue growth lately, CuriosityStream's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. 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 CuriosityStream.

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

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

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 8.5%. As a result, revenue from three years ago have also fallen 6.5% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 6.8% as estimated by the dual analysts watching the company. With the industry predicted to deliver 13% growth, the company is positioned for a weaker revenue result.

With this information, we find it concerning that CuriosityStream is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does CuriosityStream's P/S Mean For Investors?

CuriosityStream's P/S is on the rise since its shares have risen strongly. 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.

It comes as a surprise to see CuriosityStream trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

Having said that, be aware CuriosityStream is showing 3 warning signs in our investment analysis, and 1 of those shouldn't be ignored.

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.