Universe Entertainment and Culture Group Company Limited (HKG:1046) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness.    But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 6.9% in the last twelve months.  

In spite of the firm bounce in price, it's still not a stretch to say that Universe Entertainment and Culture Group's price-to-sales (or "P/S") ratio of 1.5x right now seems quite "middle-of-the-road" compared to the Entertainment industry in Hong Kong, where the median P/S ratio is around 1.6x.  Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.    

Check out our latest analysis for Universe Entertainment and Culture Group

SEHK:1046 Price to Sales Ratio vs Industry January 31st 2024

What Does Universe Entertainment and Culture Group's Recent Performance Look Like?

Universe Entertainment and Culture Group certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace.   Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising.  If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.    

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Universe Entertainment and Culture Group will help you shine a light on its historical performance.  

What Are Revenue Growth Metrics Telling Us About The P/S?  

Universe Entertainment and Culture Group'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, we see that the company grew revenue by an impressive 55% last year.    Still, revenue has fallen 12% in total from three years ago, which is quite disappointing.  Therefore, it's fair to say the revenue growth recently has been undesirable for the company.  

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 45% shows it's an unpleasant look.

With this information, we find it concerning that Universe Entertainment and Culture Group is trading at a fairly similar P/S compared to the industry.  It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects.  Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.  

What Does Universe Entertainment and Culture Group's P/S Mean For Investors?

Universe Entertainment and Culture Group's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry.      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.

We find it unexpected that Universe Entertainment and Culture Group trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow.  When we see revenue heading backwards in the context of growing industry forecasts, it'd make sense to expect a possible share price decline on the horizon, sending the moderate P/S lower.  Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.    

We don't want to rain on the parade too much, but we did also find 3 warning signs for Universe Entertainment and Culture Group (1 is a bit unpleasant!) that you need to be mindful of.  

If you're unsure about the strength of Universe Entertainment and Culture 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.