The Price Is Right For Alliance Entertainment Holding Corporation (NASDAQ:AENT) Even After Diving 28%

The Alliance Entertainment Holding Corporation (NASDAQ:AENT) share price has fared very poorly over the last month, falling by a substantial 28%. The good news is that in the last year, the stock has shone bright like a diamond, gaining 104%.

In spite of the heavy fall in price, you could still be forgiven for feeling indifferent about Alliance Entertainment Holding's P/S ratio of 0.2x, since the median price-to-sales (or "P/S") ratio for the Retail Distributors industry in the United States is also close to 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Alliance Entertainment Holding

What Does Alliance Entertainment Holding's Recent Performance Look Like?

Alliance Entertainment Holding 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. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Some Revenue Growth Forecasted For Alliance Entertainment Holding?

Alliance Entertainment Holding's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.0%. This means it has also seen a slide in revenue over the longer-term as revenue is down 27% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 2.1% over the next year. That's shaping up to be similar to the 1.8% growth forecast for the broader industry.

With this information, we can see why Alliance Entertainment Holding is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Following Alliance Entertainment Holding's share price tumble, its P/S is just clinging on to the industry median 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.

Our look at Alliance Entertainment Holding's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. 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. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

You need to take note of risks, for example - Alliance Entertainment Holding has 3 warning signs (and 2 which are potentially serious) we think you should know about.

If these risks are making you reconsider your opinion on Alliance Entertainment Holding, 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.