Paranovus Entertainment Technology Ltd. (NASDAQ:PAVS) shares have had a really impressive month, gaining 128% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 11% in the last twelve months.
In spite of the firm bounce in price, Paranovus Entertainment Technology's price-to-sales (or "P/S") ratio of 0.3x might still make it look like a buy right now compared to the Personal Products industry in the United States, where around half of the companies have P/S ratios above 1.3x and even P/S above 4x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Paranovus Entertainment Technology
NasdaqCM:PAVS Price to Sales Ratio vs Industry August 28th 2023
How Has Paranovus Entertainment Technology Performed Recently?
The revenue growth achieved at Paranovus Entertainment Technology over the last year would be more than acceptable for most companies. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on Paranovus Entertainment Technology will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Paranovus Entertainment Technology will help you shine a light on its historical performance.
How Is Paranovus Entertainment Technology's Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as low as Paranovus Entertainment Technology's is when the company's growth is on track to lag the industry.
Retrospectively, the last year delivered a decent 9.7% gain to the company's revenues. Pleasingly, revenue has also lifted 51% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Comparing that to the industry, which is only predicted to deliver 6.6% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.
With this in mind, we find it intriguing that Paranovus Entertainment Technology's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.
The Key Takeaway
Despite Paranovus Entertainment Technology's share price climbing recently, its P/S still lags most other companies. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
We're very surprised to see Paranovus Entertainment Technology currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.
Having said that, be aware Paranovus Entertainment Technology is showing 5 warning signs in our investment analysis, and 4 of those are a bit concerning.
If these risks are making you reconsider your opinion on Paranovus Entertainment Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.