Why Investors Shouldn't Be Surprised By Lions Gate Entertainment Corp.'s (NYSE:LGF.A) Low P/S

You may think that with a price-to-sales (or "P/S") ratio of 0.6x Lions Gate Entertainment Corp. (NYSE:LGF.A) is a stock worth checking out, seeing as almost half of all the Entertainment companies in the United States have P/S ratios greater than 1.2x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Lions Gate Entertainment

What Does Lions Gate Entertainment's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Lions Gate Entertainment has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

How Is Lions Gate Entertainment's Revenue Growth Trending?

In order to justify its P/S ratio, Lions Gate Entertainment would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.7%. Revenue has also lifted 19% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 7.3% during the coming year according to the twelve analysts following the company. That's shaping up to be materially lower than the 12% growth forecast for the broader industry.

With this in consideration, its clear as to why Lions Gate Entertainment's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Lions Gate Entertainment's P/S

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 established that Lions Gate Entertainment maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

Plus, you should also learn about these 2 warning signs we've spotted with Lions Gate Entertainment.

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.