holder Sphere Entertainment (NYSE:SPHR) shares will come as a sigh of relief, having rallied 28% over the past 30 days, but it needs to continue to repair the recent damage done to investors’ portfolios. Still, the 30-day gain doesn’t change the fact that long-term shareholders have seen their shares fall sharply over the past 12 months as the stock price fell 50%.
Despite its skyrocketing price, Sphere Entertainment’s price-to-sales (or “P/S”) ratio of 0.5 compared to the U.S. entertainment industry might still make it look like a buy for these companies at more than 1.3 times, or even more than P/E ratios of 4x are also common. Although, it is not wise to just take the P/S at face value as it may have its limited interpretation.
Check out our latest analysis for Sphere Entertainment
How has Sphere Entertainment been doing lately?
Sphere Entertainment is doing relatively well thanks to revenue growth that has outperformed most other companies of late. One possibility is that the P/S ratio is low, as investors think this strong revenue performance may become less impressive going forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the stock price.
Wondering how analysts see Sphere Entertainment’s future versus the industry as a whole?In that case, our free Reports are a good place to start.
What do revenue growth metrics tell us about low P/S?
Sphere Entertainment’s P/S ratio is typical for a company that is expected to deliver only limited growth and importantly perform worse than the industry.
If we look back at last year’s revenue growth, the company posted an impressive 63% growth. Revenue has grown 99% overall, helped by short-term performance over the last three years. Therefore, it can be said that the company’s recent revenue growth has been very good.
Moving forward, estimates from the five analysts covering the company suggest that revenue growth is heading negative, falling 17% in each of the next three years. That’s not good news when the rest of the industry is projected to grow 9.6% a year.
With this information, we shouldn’t be surprised that Sphere Entertainment is trading at a lower P/S than the industry. Still, there’s no guarantee that P/S has bottomed out, but a reversal in earnings. If the company does not improve its revenue growth, there is a possibility that the P/S will fall to even lower levels.
Sphere Entertainment’s stock has soared recently, but its P/S remains moderate. Some argue that the price-to-sales ratio is an inferior measure of value in some industries, but it can be a powerful indicator of business sentiment.
Clearly, Sphere Entertainment is maintaining its low P/S as its revenue decline forecast is weak, as expected. At this stage, investors do not believe that the potential for revenue improvement is strong enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form barriers for share prices around these levels.
There are other important risk factors to consider before investing, we have found 2 Sphere Entertainment warning signs You should know.
if these Risks to make you rethink about Sphere Entertainmentexplore our interactive list of high-quality stocks and learn about other stocks.
What are the risks and opportunities Sphere entertainment?
Earnings projected to grow 69.44% annually
Has cash runway for less than 1 year
The share price has fluctuated significantly in the past 3 months
View all risks and rewards
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This article by Simply Wall St is general in nature. We use only an unbiased methodology to provide reviews based on historical data and analyst forecasts, 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 into account your objectives or your financial situation. Our goal is to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St has no positions in any of the stocks mentioned.
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