Earnings tell the story for Linmon Media Limited (HKG:9857) as share price rises 26%

Despite an already strong run, Linmon Media Limited (HKG:9857) Shares are on the rise, having gained 26% in the last thirty days. Unfortunately, last month’s gains have done little to make up for last year’s losses, with the stock still down 29% in that period.

After such a big share price rise, you might think that Linmon Media is a stock not worth investigating, with a price-to-sales ratio (or “P/S”) of 2.5x, considering that almost half of Hong Kong’s companies Kong The entertainment industry has a price-to-earnings ratio of less than 1.6x. Although it is not wise to take the P/S at face value as there may be an explanation as to why it is so high.

Check out our latest analysis for Linmon Media

What does Linmon Media’s recent performance look like?

With revenue growth inferior to most other companies lately, Linmon Media has been relatively sluggish. It may be that many expect the uninspiring revenue performance to rebound significantly, meaning the price/earnings ratio has not collapsed. However, if this is not the case, investors can be caught paying too much for the shares.

If you want to see what analysts are predicting for the future, check out our free report on Linmon Media.

Do the revenue forecasts match the high P/S ratio?

The only time you’ll really feel comfortable seeing a P/S as high as Linmon Media’s is when the company’s growth is on track to outperform the industry.

Retrospectively, the past year delivered an exceptional 28% gain to the company’s revenue. Despite this strong recent growth, the company is still struggling to catch up, as revenue has frustratingly shrunk by a total of 14% over three years. Therefore, it’s fair to say that revenue growth has been undesirable for the company lately.

In terms of prospects, the next three years should generate growth of 29% per year, as estimated by the dual analysts covering the company. Meanwhile, the rest of the sector is expected to grow at only 18% per year, which is noticeably less attractive.

In light of this, it’s understandable that Linmon Media’s P/S stands above most other companies. It seems most investors expect this strong future growth and are willing to pay more for the stock.

What can we learn from Linmon Media’s P/S?

Linmon Media shares have taken a big step north, but the price-to-earnings ratio has increased as a result. It is argued that the price-to-sales ratio is an inferior measure of value within certain sectors, but it can be a powerful indicator of business confidence.

As we suspected, our review of Linmon Media’s analyst forecasts found that its superior revenue prospects contribute to its high P/E. At this point, shareholders are comfortable with the P/S as they are confident that future earnings are not at risk. Unless these conditions change, they will continue to provide strong support to the stock price.

There can be many potential risks on a company’s balance sheet. Us free Balance sheet analysis for Linmon Media with six simple checks allows you to spot any risks that could be a problem.

If strong companies that make profits interest you, then you’ll definitely want to check this out free list of interesting companies that trade at a low price/earnings (but have proven that they can grow their profits).

Do you have feedback on this article? Worried about the content? Please contact us directly from us. You can also email the editorial team (at) Simplywallst.com.

This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.