Revenues Not Telling The Story For Cable One, Inc. (NYSE:CABO) After Shares Rise 28%

Despite an already strong run, Cable One, Inc. (NYSE:CABO) shares have been powering on, with a gain of 28% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 45% in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Cable One's P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Media industry in the United States is also close to 1.1x. 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.

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View our latest analysis for Cable One

What Does Cable One's P/S Mean For Shareholders?

Cable One hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Is There Some Revenue Growth Forecasted For Cable One?

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

Retrospectively, the last year delivered a frustrating 5.4% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 10% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 2.6% per annum during the coming three years according to the six analysts following the company. With the industry predicted to deliver 2.8% growth each year, that's a disappointing outcome.

In light of this, it's somewhat alarming that Cable One's P/S sits in line with the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Bottom Line On Cable One's P/S

Its shares have lifted substantially and now Cable One's P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

While Cable One's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

You always need to take note of risks, for example - Cable One has 1 warning sign we think you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.