Lions Gate Entertainment Corp. (NYSE:LGF.A) Not Doing Enough For Some Investors As Its Shares Slump 28%

Lions Gate Entertainment Corp. (NYSE:LGF.A) shareholders won’t be pleased to see that the share price has had a very rough month, dropping 28% and undoing the prior period’s positive performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 20% in that time.

Following the heavy fall in price, Lions Gate Entertainment’s price-to-sales (or “P/S”) ratio of 0.5x 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 1.3x 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.

Check out our latest analysis for Lions Gate Entertainment

What Does Lions Gate Entertainment’s P/S Mean For Shareholders?

Lions Gate Entertainment could be doing better as it’s been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you’d be hoping revenue doesn’t get any worse and that you could 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 Lions Gate Entertainment.

How Is Lions Gate Entertainment’s Revenue Growth Trending?

In order to justify its P/S ratio, Lions Gate Entertainment would need to produce sluggish growth that’s trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 4.2%. The solid recent performance means it was also able to grow revenue by 23% in total over the last three years. Therefore, it’s fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 5.3% each year during the coming three years according to the eight analysts following the company. With the industry predicted to deliver 9.9% growth per year, the company is positioned for a weaker revenue result.

In light of this, it’s understandable that Lions Gate Entertainment’s P/S sits below the majority of other companies. Apparently many shareholders weren’t comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Lions Gate Entertainment’s P/S Mean For Investors?

Lions Gate Entertainment’s recently weak share price has pulled its P/S back below other Entertainment companies. Using the price-to-sales ratio alone to determine if you should sell your stock isn’t sensible, however it can be a practical guide to the company’s future prospects.

As we suspected, our examination of Lions Gate Entertainment’s analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders’ pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Lions Gate Entertainment (1 makes us a bit uncomfortable!) that we have uncovered.

If you’re unsure about the strength of Lions Gate Entertainment’s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.