Cautious Investors Not Rewarding iHeartMedia, Inc.'s (NASDAQ:IHRT) Performance Completely

You may think that with a price-to-sales (or "P/S") ratio of 0.1x iHeartMedia, Inc. (NASDAQ:IHRT) is a stock worth checking out, seeing as almost half of all the Media companies in the United States have P/S ratios greater than 1.1x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for iHeartMedia

How Has iHeartMedia Performed Recently?

With revenue growth that's inferior to most other companies of late, iHeartMedia has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on iHeartMedia will help you uncover what's on the horizon.

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

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

Taking a look back first, we see that the company managed to grow revenues by a handy 3.2% last year. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 0.9% during the coming year according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 2.0%, which is not materially different.

With this information, we find it odd that iHeartMedia is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've seen that iHeartMedia currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for iHeartMedia (2 can't be ignored!) that you need to be mindful of.

If you're unsure about the strength of iHeartMedia's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.