PLAYSTUDIOS, Inc. (NASDAQ:MYPS) Looks Inexpensive After Falling 30% But Perhaps Not Attractive Enough

The PLAYSTUDIOS, Inc. (NASDAQ:MYPS) share price has fared very poorly over the last month, falling by a substantial 30%. For any long-term shareholders, the last month ends a year to forget by locking in a 58% share price decline.

After such a large drop in price, PLAYSTUDIOS' price-to-sales (or "P/S") ratio of 0.6x might make it look like a buy right now compared to the Entertainment industry in the United States, where around half of the companies have P/S ratios above 1.5x and even P/S above 5x are quite common. 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 PLAYSTUDIOS

How Has PLAYSTUDIOS Performed Recently?

While the industry has experienced revenue growth lately, PLAYSTUDIOS' revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially 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 PLAYSTUDIOS will help you uncover what's on the horizon.

How Is PLAYSTUDIOS' Revenue Growth Trending?

PLAYSTUDIOS' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.9%. Regardless, revenue has managed to lift by a handy 8.9% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 0.5% per year during the coming three years according to the eight analysts following the company. That's not great when the rest of the industry is expected to grow by 10% per annum.

In light of this, it's understandable that PLAYSTUDIOS' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What We Can Learn From PLAYSTUDIOS' P/S?

The southerly movements of PLAYSTUDIOS' shares means its P/S is now sitting at a pretty low level. 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.

It's clear to see that PLAYSTUDIOS maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. 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.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for PLAYSTUDIOS with six simple checks will allow you to discover any risks that could be an issue.

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