Little Excitement Around Cheetah Mobile Inc.'s (NYSE:CMCM) Revenues As Shares Take 27% Pounding

Cheetah Mobile Inc. (NYSE:CMCM) shares have had a horrible month, losing 27% after a relatively good period beforehand. The good news is that in the last year, the stock has shone bright like a diamond, gaining 108%.

Since its price has dipped substantially, Cheetah Mobile may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Software industry in the United States have P/S ratios greater than 5.3x and even P/S higher than 13x 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 so limited.

Check out our latest analysis for Cheetah Mobile

What Does Cheetah Mobile's Recent Performance Look Like?

As an illustration, revenue has deteriorated at Cheetah Mobile over the last year, which is not ideal at all. Perhaps the market believes the recent revenue performance isn't good enough to keep up the industry, causing the P/S ratio to suffer. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Cheetah Mobile's earnings, revenue and cash flow.

Is There Any Revenue Growth Forecasted For Cheetah Mobile?

In order to justify its P/S ratio, Cheetah Mobile would need to produce anemic growth that's substantially trailing the industry.

Retrospectively, the last year delivered a frustrating 3.7% decrease to the company's top line. As a result, revenue from three years ago have also fallen 15% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to grow by 27% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this in mind, we understand why Cheetah Mobile's P/S is lower than most of its industry peers. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as recent revenue trends are already weighing down the shares.

The Key Takeaway

Cheetah Mobile's P/S looks about as weak as its stock price lately. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

It's no surprise that Cheetah Mobile maintains its low P/S off the back of its sliding revenue over the medium-term. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for Cheetah Mobile (1 doesn't sit too well with us!) that you should be aware of.

If these risks are making you reconsider your opinion on Cheetah Mobile, 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.