Snail, Inc.'s (NASDAQ:SNAL) Shares Leap 32% Yet They're Still Not Telling The Full Story

Those holding Snail, Inc. (NASDAQ:SNAL) shares would be relieved that the share price has rebounded 32% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Looking back a bit further, it's encouraging to see the stock is up 59% in the last year.

Even after such a large jump 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 1.4x and even P/S above 6x are quite common. 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 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. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think Snail's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Snail's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 47%. Still, revenue has fallen 14% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 20% over the next year. That's shaping up to be materially higher than the 15% growth forecast for the broader industry.

With this information, we find it odd that Snail is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What Does Snail's P/S Mean For Investors?

Despite Snail's share price climbing recently, its P/S still lags most other companies. 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. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

You need to take note of risks, for example - Snail has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.