The Asiaray Media Group Limited (HKG:1993) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 32% share price drop.

Even after such a large drop in price, it's still not a stretch to say that Asiaray Media Group's price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Media industry in Hong Kong, where the median P/S ratio is around 0.6x. 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.

What Does Asiaray Media Group's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Asiaray Media Group over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Asiaray Media Group's Revenue Growth Trending?

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

Retrospectively, the last year delivered a frustrating 2.7% decrease to the company's top line. 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 23% 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.

Comparing that to the industry, which is predicted to deliver 9.9% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

In light of this, it's curious that Asiaray Media Group's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Final Word

Following Asiaray Media Group's share price tumble, its P/S is just clinging on to the industry median P/S. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Asiaray Media Group's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

It is also worth noting that we have found 3 warning signs for Asiaray Media Group (1 shouldn't be ignored!) that you need to take into consideration.

If you're unsure about the strength of Asiaray Media 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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