Hengdian Entertainment Co.,LTD (SHSE:603103) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 5.5% isn't as impressive.

In spite of the firm bounce in price, Hengdian EntertainmentLTD may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 4.6x, considering almost half of all companies in the Entertainment industry in China have P/S ratios greater than 6x and even P/S higher than 11x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Hengdian EntertainmentLTD Has Been Performing

While the industry has experienced revenue growth lately, Hengdian EntertainmentLTD's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Is There Any Revenue Growth Forecasted For Hengdian EntertainmentLTD?

In order to justify its P/S ratio, Hengdian EntertainmentLTD would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.0%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 8.3% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Looking ahead now, revenue is anticipated to climb by 16% during the coming year according to the dual analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 22%, which is noticeably more attractive.

With this in consideration, its clear as to why Hengdian EntertainmentLTD's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Hengdian EntertainmentLTD's P/S

Despite Hengdian EntertainmentLTD's share price climbing recently, its P/S still lags most other companies. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Hengdian EntertainmentLTD maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 4 warning signs for Hengdian EntertainmentLTD you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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