Scholastic Corporation (NASDAQ:SCHL) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 48% in that time.
Even after such a large drop in price, there still wouldn't be many who think Scholastic's price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in the United States' Media industry is similar at about 0.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
NasdaqGS:SCHL Price to Sales Ratio vs Industry January 9th 2025
What Does Scholastic's Recent Performance Look Like?
Scholastic hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.
Keen to find out how analysts think Scholastic's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Some Revenue Growth Forecasted For Scholastic?
In order to justify its P/S ratio, Scholastic would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered a frustrating 3.9% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 8.0% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.
Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 7.2% over the next year. With the industry only predicted to deliver 4.4%, the company is positioned for a stronger revenue result.
In light of this, it's curious that Scholastic's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.
The Key Takeaway
With its share price dropping off a cliff, the P/S for Scholastic looks to be in line with the rest of the Media industry. 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.
Looking at Scholastic's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
It is also worth noting that we have found 1 warning sign for Scholastic that you need to take into consideration.
If these risks are making you reconsider your opinion on Scholastic, explore our interactive list of high quality stocks to get an idea of what else is out there.
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