ATA Creativity Global (NASDAQ:AACG) shares have had a really impressive month, gaining 37% after a shaky period beforehand.    Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 21% over that time.  

Although its price has surged higher, you could still be forgiven for feeling indifferent about ATA Creativity Global's P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Consumer Services industry in the United States is also close to 1.5x.  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.    

Check out our latest analysis for ATA Creativity Global

NasdaqGM:AACG Price to Sales Ratio vs Industry January 7th 2024

What Does ATA Creativity Global's P/S Mean For Shareholders?

Revenue has risen firmly for ATA Creativity Global recently, which is pleasing to see.   It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising.  If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.    

Although there are no analyst estimates available for ATA Creativity Global, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.  

How Is ATA Creativity Global's Revenue Growth Trending?  

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

Taking a look back first, we see that the company managed to grow revenues by a handy 7.8% last year.   This was backed up an excellent period prior to see revenue up by 39% in total over the last three years.  So we can start by confirming that the company has done a great job of growing revenues over that time.  

It's interesting to note that the rest of the industry is similarly expected to grow by 13% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's understandable that ATA Creativity Global's P/S sits in line with the majority of other companies.  It seems most investors are expecting to see average growth rates continue into the future and are only willing to pay a moderate amount for the stock.  

The Key Takeaway

ATA Creativity Global appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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.

It appears to us that ATA Creativity Global maintains its moderate P/S off the back of its recent three-year growth being in line with the wider industry forecast.  Currently, with a past revenue trend that aligns closely wit the industry outlook, shareholders are confident the company's future revenue outlook won't contain any major surprises.  If recent medium-term revenue trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for ATA Creativity Global that you need to be mindful of.  

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.