There's No Escaping PLAYSTUDIOS, Inc.'s (NASDAQ:MYPS) Muted Revenues

With a price-to-sales (or "P/S") ratio of 0.5x PLAYSTUDIOS, Inc. (NASDAQ:MYPS) may be sending bullish signals at the moment, given that almost half of all the Entertainment companies in the United States have P/S ratios greater than 1.5x and even P/S higher than 6x are not unusual. 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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See our latest analysis for PLAYSTUDIOS

What Does PLAYSTUDIOS' Recent Performance Look Like?

While the industry has experienced revenue growth lately, PLAYSTUDIOS' revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is PLAYSTUDIOS' Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 11%. The last three years don't look nice either as the company has shrunk revenue by 3.3% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 7.0% during the coming year according to the five analysts following the company. Meanwhile, the broader industry is forecast to expand by 21%, which paints a poor picture.

With this information, we are not surprised that PLAYSTUDIOS is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does PLAYSTUDIOS' P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that PLAYSTUDIOS' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, PLAYSTUDIOS' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for PLAYSTUDIOS with six simple checks on some of these key factors.

If you're unsure about the strength of PLAYSTUDIOS' 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.