Despite an already strong run, Cinemark Holdings, Inc. (NYSE:CNK) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 62%.

Although its price has surged higher, there still wouldn't be many who think Cinemark Holdings' price-to-sales (or "P/S") ratio of 1.2x is worth a mention when the median P/S in the United States' Entertainment industry is similar at about 1.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

What Does Cinemark Holdings' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Cinemark Holdings has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Cinemark Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Despite the lack of growth, the company was still able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it has slowed to such an extent.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 10% over the next year. Meanwhile, the rest of the industry is forecast to expand by 12%, which is not materially different.

With this information, we can see why Cinemark Holdings is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What Does Cinemark Holdings' P/S Mean For Investors?

Cinemark Holdings' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

A Cinemark Holdings' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Entertainment industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Cinemark Holdings (at least 1 which doesn't sit too well with us), and understanding these should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.