Warner Bros. Discovery, Inc.'s (NASDAQ:WBD) Price Is Right But Growth Is Lacking After Shares Rocket 30%

The Warner Bros. Discovery, Inc. (NASDAQ:WBD) share price has done very well over the last month, posting an excellent gain of 30%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 4.5% in the last twelve months.

Although its price has surged higher, Warner Bros. Discovery's price-to-sales (or "P/S") ratio of 0.6x 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 1.3x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

Check out our latest analysis for Warner Bros. Discovery

How Has Warner Bros. Discovery Performed Recently?

Warner Bros. Discovery could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Warner Bros. Discovery will help you uncover what's on the horizon.

How Is Warner Bros. Discovery's Revenue Growth Trending?

Warner Bros. Discovery'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.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.9%. Even so, admirably revenue has lifted 233% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 1.3% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 11% per year, which is noticeably more attractive.

With this in consideration, its clear as to why Warner Bros. Discovery's P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On Warner Bros. Discovery's P/S

Warner Bros. Discovery's stock price has surged recently, but its but its P/S still remains modest. 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.

As we suspected, our examination of Warner Bros. Discovery's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 1 warning sign for Warner Bros. Discovery you should be aware of.

If you're unsure about the strength of Warner Bros. Discovery's 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.