Strawbear Entertainment Group (HKG:2125) is priced right, but growth is lacking after shares rose 27%

The Strawbear Entertainment Group (HKG:2125) The share price has performed very well over the last month, recording an excellent rise of 27%. Longer-term shareholders would be grateful for the recovery in the share price, as it is virtually unchanged year-on-year after the recent upswing.

Despite the significant price recovery, Strawbear Entertainment Group may still be sending buy signals at the moment with its price-to-sales (or “P/S”) ratio of 0.3x, considering almost half of all companies in the entertainment industry in Hong Kong are at P /S ratios above 1.4x, and even P/S ratios above 4x are not uncommon. However, it is not advisable to simply take the P/S at face value as there may be an explanation as to why it is capped.

Check out our latest analysis for Strawbear Entertainment Group

What is Strawbear Entertainment Group’s recent performance?

Strawbear Entertainment Group’s sales have increased significantly recently, which is encouraging. It is possible that the market is expecting a collapse in this acceptable sales performance, which has resulted in the price-to-earnings ratio remaining low. If this is not the case, existing shareholders have reason to be optimistic about the future development of the share price.

Would you like to get a complete overview of the company’s profits, sales and cash flow? Then ours free The Strawbear Entertainment Group report will help you gain insight into its historical performance.

Do the sales forecasts match the low price-to-performance ratio?

To justify its P/E ratio, Strawbear Entertainment Group would have to deliver slow growth that lags the industry.

If we first look back, we see that the company grew revenue by an impressive 25% last year. Despite this strong recent growth, the company is still struggling to catch up, with its overall three-year revenue frustratingly down 9.1%. Therefore, it’s fair to say that revenue growth has been undesirable for the company recently.

In contrast to the company, the rest of the industry is expected to grow by 37% next year, putting the company’s recent medium-term sales decline into perspective.

With this in mind, it’s understandable that Strawbear Entertainment Group’s P/S is lower than the majority of other companies. However, we believe that falling sales are unlikely to result in a stable P/E ratio over the longer term, which could cause future disappointment for shareholders. There’s a chance that the P/E ratio could fall to an even lower level if the company doesn’t increase its revenue growth.

The last word

The recent increase in share price wasn’t enough to push Strawbear Entertainment Group’s P/E ratio close to the industry average. Generally, we limit our use of the price-to-sales ratio to determining what the market thinks about the overall health of a company.

It’s no surprise that Strawbear Entertainment Group is maintaining its low P/E ratio due to declining sales over the medium term. At this point, investors believe that the potential for revenue improvement is not great enough to justify a higher P/E ratio. Unless recent medium-term conditions improve, they will continue to act as a barrier to the share price near these levels.

Before you take the next step, you should be clear about this 3 warning signs for Strawbear Entertainment Group (1 should not be ignored!) that we have uncovered.

If these Risks cause you to reconsider your opinion of Strawbear Entertainment GroupExplore our interactive list of high-quality stocks to get an idea of ​​what else is out there.

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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 does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.