It's not a stretch to say that HUYA Inc.'s (NYSE:HUYA) price-to-sales (or "P/S") ratio of 0.7x right now seems quite "middle-of-the-road" for companies in the Entertainment industry in the United States, where the median P/S ratio is around 1.2x. 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.
View our latest analysis for HUYA
What Does HUYA's Recent Performance Look Like?
HUYA could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on HUYA.
Do Revenue Forecasts Match The P/S Ratio?
In order to justify its P/S ratio, HUYA would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered a frustrating 24% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 28% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Shifting to the future, estimates from the twelve analysts covering the company suggest revenue growth is heading into negative territory, declining 1.8% each year over the next three years. Meanwhile, the broader industry is forecast to expand by 9.9% each year, which paints a poor picture.
In light of this, it's somewhat alarming that HUYA's P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.
The Key Takeaway
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.
While HUYA's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.
The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for HUYA with six simple checks will allow you to discover any risks that could be an issue.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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HUYA Inc. 這麼說並不費吹灰之力。”s(紐約證券交易所代碼:HUYA)目前0.7倍的市售率(或 “市盈率”)對於美國娛樂行業的公司來說似乎相當 “中間道路”,市盈率中位數約爲1.2倍。但是,不加解釋地簡單地忽略市盈率是不明智的,因爲投資者可能忽視了一個特殊的機會或一個代價高昂的錯誤。