TVZone Media Co., Ltd. (SHSE:603721) shares have had a really impressive month, gaining 104% after a shaky period beforehand. The annual gain comes to 134% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, when almost half of the companies in China's Entertainment industry have price-to-sales ratios (or "P/S") below 7.5x, you may consider TVZone Media as a stock not worth researching with its 23.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

What Does TVZone Media's P/S Mean For Shareholders?

TVZone Media has been doing a decent job lately as it's been growing revenue at a reasonable pace. One possibility is that the P/S ratio is high because investors think this good revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, TVZone Media would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a decent 7.0% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 9.1% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

In contrast to the company, the rest of the industry is expected to grow by 31% over the next year, which really puts the company's recent medium-term revenue decline into perspective.

With this information, we find it concerning that TVZone Media is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

What We Can Learn From TVZone Media's P/S?

Shares in TVZone Media have seen a strong upwards swing lately, which has really helped boost its P/S figure. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that TVZone Media currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for TVZone Media (3 are potentially serious) you should be aware of.

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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