There wouldn't be many who think Bona Film Group Co., Ltd.'s (SZSE:001330) price-to-sales (or "P/S") ratio of 6x is worth a mention when the median P/S for the Entertainment industry in China is similar at about 6.5x. 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.

See our latest analysis for Bona Film Group

How Has Bona Film Group Performed Recently?

Bona Film Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered a frustrating 56% 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 3.3% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 103% over the next year. With the industry only predicted to deliver 37%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Bona Film Group's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Bona Film Group's P/S

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.

We've established that Bona Film Group currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Bona Film Group 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.