You may think that with a price-to-sales (or "P/S") ratio of 0.6x AMC Entertainment Holdings, Inc. (NYSE:AMC) is a stock worth checking out, seeing as almost half of all the Entertainment companies in the United States have P/S ratios greater than 1.3x and even P/S higher than 4x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
What Does AMC Entertainment Holdings' Recent Performance Look Like?
With revenue growth that's inferior to most other companies of late, AMC Entertainment Holdings has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on AMC Entertainment Holdings.
How Is AMC Entertainment Holdings' Revenue Growth Trending?
There's an inherent assumption that a company should underperform the industry for P/S ratios like AMC Entertainment Holdings' to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 29%. However, this wasn't enough as the latest three year period has seen the company endure a nasty 22% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 6.9% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 9.7% per year, which is noticeably more attractive.
In light of this, it's understandable that AMC Entertainment Holdings' P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
What Does AMC Entertainment Holdings' P/S Mean For Investors?
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
We've established that AMC Entertainment Holdings maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
There are also other vital risk factors to consider and we've discovered 4 warning signs for AMC Entertainment Holdings (1 makes us a bit uncomfortable!) that you should be aware of before investing here.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
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