Strawbear Entertainment Group (HKG:2125) shares have had a horrible month, losing 26% after a relatively good period beforehand. The last month has meant the stock is now only up 6.2% during the last year.
After such a large drop in price, Strawbear Entertainment Group may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Entertainment industry in Hong Kong have P/S ratios greater than 1.5x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Strawbear Entertainment Group
What Does Strawbear Entertainment Group's Recent Performance Look Like?
Strawbear Entertainment Group certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite 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 Strawbear Entertainment Group's earnings, revenue and cash flow.How Is Strawbear Entertainment Group's Revenue Growth Trending?
In order to justify its P/S ratio, Strawbear Entertainment Group would need to produce sluggish growth that's trailing the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 34%. Still, revenue has fallen 34% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Comparing that to the industry, which is predicted to deliver 11% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.
With this information, we are not surprised that Strawbear Entertainment Group is trading at a P/S lower than the industry. 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.
What Does Strawbear Entertainment Group's P/S Mean For Investors?
The southerly movements of Strawbear Entertainment Group's shares means its P/S is now sitting at a pretty low level. 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.
Our examination of Strawbear Entertainment Group confirms that the company's shrinking revenue over the past medium-term is a key factor in its low price-to-sales ratio, given the industry is projected to grow. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.
There are also other vital risk factors to consider and we've discovered 2 warning signs for Strawbear Entertainment Group (1 is a bit concerning!) that you should be aware of before investing here.
If you're unsure about the strength of Strawbear Entertainment Group'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.