Fewer Investors Than Expected Jumping On LiveOne, Inc. (NASDAQ:LVO)

It's not a stretch to say that LiveOne, Inc.'s (NASDAQ:LVO) price-to-sales (or "P/S") ratio of 1.1x right now seems quite "middle-of-the-road" for companies in the Entertainment industry in the United States, where the median P/S ratio is around 1.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for LiveOne

How Has LiveOne Performed Recently?

LiveOne hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

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

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 15%. Still, the latest three year period has seen an excellent 157% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 18% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 9.7% per year, which is noticeably less attractive.

In light of this, it's curious that LiveOne's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On LiveOne's P/S

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that LiveOne currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with LiveOne (at least 3 which are a bit unpleasant), and understanding them should be part of your investment process.

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.