Pinning Down Madison Square Garden Sports Corp.'s (NYSE:MSGS) P/S Is Difficult Right Now

When you see that almost half of the companies in the Entertainment industry in the United States have price-to-sales ratios (or "P/S") below 1.2x, Madison Square Garden Sports Corp. (NYSE:MSGS) looks to be giving off strong sell signals with its 5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Madison Square Garden Sports

How Has Madison Square Garden Sports Performed Recently?

Madison Square Garden Sports could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Madison Square Garden Sports' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Madison Square Garden Sports' Revenue Growth Trending?

In order to justify its P/S ratio, Madison Square Garden Sports would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 9.6% gain to the company's revenues. The latest three year period has also seen an excellent 48% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 2.6% per year as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 10% each year growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that Madison Square Garden Sports' P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Madison Square Garden Sports' P/S?

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.

It comes as a surprise to see Madison Square Garden Sports trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 2 warning signs for Madison Square Garden Sports (1 doesn't sit too well with us!) that you should be aware of.

If these risks are making you reconsider your opinion on Madison Square Garden Sports, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.