Wanda Film Holding Co., Ltd. (SZSE:002739) shares have had a really impressive month, gaining 30% after a shaky period beforehand. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 2.2% over the last year.

In spite of the firm bounce in price, Wanda Film Holding's price-to-sales (or "P/S") ratio of 2.1x might still make it look like a strong buy right now compared to the wider Entertainment industry in China, where around half of the companies have P/S ratios above 6.7x and even P/S above 12x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does Wanda Film Holding's P/S Mean For Shareholders?

Wanda Film Holding certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

How Is Wanda Film Holding's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Wanda Film Holding's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The strong recent performance means it was also able to grow revenue by 89% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 22% during the coming year according to the eight analysts following the company. That's shaping up to be materially lower than the 34% growth forecast for the broader industry.

With this information, we can see why Wanda Film Holding is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Wanda Film Holding's P/S?

Shares in Wanda Film Holding have risen appreciably however, its P/S is still subdued. 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.

As expected, our analysis of Wanda Film Holding's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. 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.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Wanda Film Holding with six simple checks will allow you to discover any risks that could be an issue.

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.