What You Can Learn From Snail, Inc.'s (NASDAQ:SNAL) P/S After Its 25% Share Price Crash

The Snail, Inc. (NASDAQ:SNAL) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. The good news is that in the last year, the stock has shone bright like a diamond, gaining 103%.

Even after such a large drop in price, it's still not a stretch to say that Snail's price-to-sales (or "P/S") ratio of 0.9x right now seems quite "middle-of-the-road" compared to the Entertainment industry in the United States, where the median P/S ratio is around 1.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Snail

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

Snail certainly has been doing a good job lately as it's been growing revenue more than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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?

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

If we review the last year of revenue growth, the company posted a terrific increase of 82%. Still, revenue has fallen 19% 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.

Turning to the outlook, the next year should generate growth of 15% as estimated by the only analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 13%, which is not materially different.

With this in mind, it makes sense that Snail's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Following Snail's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

A Snail's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Entertainment industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Before you take the next step, you should know about the 2 warning signs for Snail (1 is potentially serious!) 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.