Investors Appear Satisfied With Sea Limited's (NYSE:SE) Prospects As Shares Rocket 25%

Despite an already strong run, Sea Limited (NYSE:SE) shares have been powering on, with a gain of 25% in the last thirty days. The last month tops off a massive increase of 117% in the last year.

Since its price has surged higher, when almost half of the companies in the United States' Entertainment industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider Sea as a stock not worth researching with its 3.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Sea

How Sea Has Been Performing

With revenue growth that's inferior to most other companies of late, Sea has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

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

How Is Sea's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Sea's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 14%. The latest three year period has also seen an excellent 112% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 15% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 10% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Sea's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Sea's P/S?

The strong share price surge has lead to Sea's P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into Sea shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Sea with six simple checks on some of these key factors.

If you're unsure about the strength of Sea'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.