Dolphin Entertainment, Inc.'s (NASDAQ:DLPN) Share Price Is Matching Sentiment Around Its Revenues

You may think that with a price-to-sales (or "P/S") ratio of 0.2x Dolphin Entertainment, Inc. (NASDAQ:DLPN) is a stock worth checking out, seeing as almost half of all the Entertainment companies in the United States have P/S ratios greater than 1.4x and even P/S higher than 5x aren't out of the ordinary. 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 Dolphin Entertainment

What Does Dolphin Entertainment's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Dolphin Entertainment has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Dolphin Entertainment's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. Pleasingly, revenue has also lifted 61% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 5.6% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 13%, which is noticeably more attractive.

With this information, we can see why Dolphin Entertainment is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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.

As we suspected, our examination of Dolphin Entertainment's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Dolphin Entertainment, and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on Dolphin Entertainment, 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.