Yahoo Finance Getting In Cheap On OverActive Media Corp. (CVE:OAM) Is Unlikely
With a median price-to-sales (or "P/S") ratio of close to 0.5x in the Entertainment industry in Canada, you could be forgiven for feeling indifferent about OverActive Media Corp.'s (CVE:OAM) P/S ratio of 0.8x. 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 OverActive Media
How OverActive Media Has Been Performing
While the industry has experienced revenue growth lately, OverActive Media's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. 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 OverActive Media.
Is There Some Revenue Growth Forecasted For OverActive Media?
The only time you'd be comfortable seeing a P/S like OverActive Media's is when the company's growth is tracking the industry closely.
Retrospectively, the last year delivered a frustrating 1.0% decrease to the company's top line. Even so, admirably revenue has lifted 84% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to climb by 5.6% during the coming year according to the one analyst following the company. Meanwhile, the rest of the industry is forecast to expand by 23%, which is noticeably more attractive.
With this in mind, we find it intriguing that OverActive Media's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
The Bottom Line On OverActive Media's P/S
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.
Given that OverActive Media's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
Plus, you should also learn about these 3 warning signs we've spotted with OverActive Media (including 2 which are a bit unpleasant).
If you're unsure about the strength of OverActive Media's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
