Yahoo Finance Investors Don't See Light At End Of Cinemark Holdings, Inc.'s (NYSE:CNK) Tunnel
Cinemark Holdings, Inc.'s (NYSE:CNK) price-to-sales (or "P/S") ratio of 0.6x might make it look like a buy right now compared to the Entertainment industry in the United States, where around half of the companies have P/S ratios above 1.2x and even P/S above 4x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
Check out our latest analysis for Cinemark Holdings
How Cinemark Holdings Has Been Performing
Recent times have been advantageous for Cinemark Holdings as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cinemark Holdings.
How Is Cinemark Holdings' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as Cinemark Holdings' is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 20%. The strong recent performance means it was also able to grow revenue by 120% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Turning to the outlook, the next year should generate growth of 0.07% as estimated by the ten analysts watching the company. With the industry predicted to deliver 13% growth, the company is positioned for a weaker revenue result.
With this in consideration, its clear as to why Cinemark Holdings' P/S is falling short industry peers. 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 Cinemark Holdings' P/S Mean For Investors?
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.
As we suspected, our examination of Cinemark Holdings' analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.
It is also worth noting that we have found 2 warning signs for Cinemark Holdings (1 doesn't sit too well with us!) that you need to take into consideration.
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.
