eSun Holdings Limited (HKG:571) shareholders are no doubt pleased to see that the share price has bounced 28% in the last month, although it is still struggling to make up recently lost ground. But the last month did very little to improve the 79% share price decline over the last year.

In spite of the firm bounce in price, eSun Holdings' price-to-sales (or "P/S") ratio of 0.1x might still make it look like a buy right now compared to the Entertainment industry in Hong Kong, where around half of the companies have P/S ratios above 1.8x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

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

Revenue has risen firmly for eSun Holdings recently, which is pleasing to see. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. Those who are bullish on eSun Holdings will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Is There Any Revenue Growth Forecasted For eSun Holdings?

The only time you'd be truly comfortable seeing a P/S as low as eSun Holdings' is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. The strong recent performance means it was also able to grow revenue by 42% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 20% shows it's noticeably less attractive.

With this in consideration, it's easy to understand why eSun Holdings' P/S falls short of the mark set by its industry peers. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

The latest share price surge wasn't enough to lift eSun Holdings' P/S close to the industry median. 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.

As we suspected, our examination of eSun Holdings revealed its three-year revenue trends are contributing to its low P/S, given they look worse than current industry expectations. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

And what about other risks? Every company has them, and we've spotted 2 warning signs for eSun Holdings (of which 1 is significant!) you should know about.

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

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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.