Snail, Inc. (NASDAQ:SNAL) Might Not Be As Mispriced As It Looks After Plunging 35%

Unfortunately for some shareholders, the Snail, Inc. (NASDAQ:SNAL) share price has dived 35% in the last thirty days, prolonging recent pain. Indeed, the recent drop has reduced its annual gain to a relatively sedate 4.9% over the last twelve months.

Even after such a large drop in price, Snail's price-to-sales (or "P/S") ratio of 0.5x might still 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 1.1x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

We've discovered 2 warning signs about Snail. View them for free.

See our latest analysis for Snail

What Does Snail's Recent Performance Look Like?

Recent times have been advantageous for Snail as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you 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.

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

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 39%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 21% drop in revenue in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 20% during the coming year according to the only analyst following the company. With the industry only predicted to deliver 15%, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Snail's P/S sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Snail's P/S has taken a dip along with its share price. 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.

To us, it seems Snail currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

Before you take the next step, you should know about the 2 warning signs for Snail (1 shouldn't be ignored!) that we have uncovered.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.