Revenues Tell The Story For Cinemark Holdings, Inc. (NYSE:CNK) As Its Stock Soars 26%

Cinemark Holdings, Inc. (NYSE:CNK) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 62% in the last year.

Although its price has surged higher, it's still not a stretch to say that Cinemark Holdings' price-to-sales (or "P/S") ratio of 1.2x 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 1.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Cinemark Holdings

How Cinemark Holdings Has Been Performing

With revenue growth that's inferior to most other companies of late, Cinemark Holdings has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. 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 Cinemark Holdings will help you uncover what's on the horizon.

How Is Cinemark Holdings' Revenue Growth Trending?

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, even though the last 12 months were nothing to write home about. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 10% over the next year. With the industry predicted to deliver 12% growth , the company is positioned for a comparable revenue result.

With this information, we can see why Cinemark Holdings is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Cinemark Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've seen that Cinemark Holdings maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Cinemark Holdings (1 is potentially serious) you should be aware of.

If you're unsure about the strength of Cinemark Holdings' 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.