Cathay Media and Education Group Inc. (HKG:1981) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 33% in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think Cathay Media and Education Group's price-to-sales (or "P/S") ratio of 1.7x is worth a mention when it essentially matches the median P/S in Hong Kong's Entertainment industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Cathay Media and Education Group's P/S Mean For Shareholders?

Cathay Media and Education Group could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Cathay Media and Education Group's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. However, this wasn't enough as the latest three year period has seen the company endure a nasty 3.9% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 13% per annum during the coming three years according to the three analysts following the company. With the industry predicted to deliver 18% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's curious that Cathay Media and Education Group's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Cathay Media and Education Group's P/S?

Cathay Media and Education Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Given that Cathay Media and Education Group's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Cathay Media and Education Group with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Cathay Media and Education Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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