Subdued Growth No Barrier To PLAYSTUDIOS, Inc.'s (NASDAQ:MYPS) Price

It's not a stretch to say that PLAYSTUDIOS, Inc.'s (NASDAQ:MYPS) price-to-sales (or "P/S") ratio of 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 1.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for PLAYSTUDIOS

How PLAYSTUDIOS Has Been Performing

Recent revenue growth for PLAYSTUDIOS has been in line with the industry. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

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?

In order to justify its P/S ratio, PLAYSTUDIOS would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The latest three year period has also seen a 19% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 2.1% each year as estimated by the eight analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 9.9% per annum, which is noticeably more attractive.

With this information, we find it interesting that PLAYSTUDIOS is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

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.

Our look at the analysts forecasts of PLAYSTUDIOS' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Plus, you should also learn about this 1 warning sign we've spotted with PLAYSTUDIOS.

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.