Lions Gate Entertainment Corp.'s (NYSE:LGF.A) Low P/S No Reason For Excitement
With a price-to-sales (or "P/S") ratio of 0.6x Lions Gate Entertainment Corp. (NYSE:LGF.A) may be sending bullish signals at the moment, given that almost half of all the Entertainment companies in the United States have P/S ratios greater than 1.2x and even P/S higher than 4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
Check out our latest analysis for Lions Gate Entertainment
What Does Lions Gate Entertainment's P/S Mean For Shareholders?
Lions Gate Entertainment's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. Those who are bullish on Lions Gate Entertainment will be hoping that this isn't the case.
Keen to find out how analysts think Lions Gate Entertainment's future stacks up against the industry? In that case, our free report is a great place to start.
Do Revenue Forecasts Match The Low P/S Ratio?
In order to justify its P/S ratio, Lions Gate Entertainment would need to produce sluggish growth that's trailing the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. Revenue has also lifted 15% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.
Turning to the outlook, the next year should generate growth of 1.8% as estimated by the twelve analysts watching the company. With the industry predicted to deliver 13% growth, the company is positioned for a weaker revenue result.
With this information, we can see why Lions Gate Entertainment is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Bottom Line On Lions Gate Entertainment's P/S
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of Lions Gate Entertainment's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Lions Gate Entertainment, and understanding these should be part of your investment process.
If these risks are making you reconsider your opinion on Lions Gate Entertainment, 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.
