Stock Analysis

Risks Still Elevated At These Prices As CuriosityStream Inc. (NASDAQ:CURI) Shares Dive 26%

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NasdaqCM:CURI

CuriosityStream Inc. (NASDAQ:CURI) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 165% in the last twelve months.

Even after such a large drop 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 still consider CuriosityStream as a stock to potentially avoid with its 1.9x 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

NasdaqCM:CURI Price to Sales Ratio vs Industry December 6th 2024

How CuriosityStream Has Been Performing

CuriosityStream could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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?

In order to justify its P/S ratio, CuriosityStream would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune 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 two analysts watching the company. With the industry predicted to deliver 12% 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. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From CuriosityStream's P/S?

CuriosityStream's P/S remain high even after its stock plunged. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It comes as a surprise to see CuriosityStream trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 5 warning signs for CuriosityStream you should be aware of, and 1 of them can't be ignored.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.