Nasdaq
華爾街日報Inspired Entertainment, Inc. (NASDAQ:INSE) Held Back By Insufficient Growth Even After Shares Climb 26%
Inspired Entertainment, Inc. (NASDAQ:INSE) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 6.4% isn't as attractive.
Even after such a large jump in price, Inspired Entertainment's price-to-sales (or "P/S") ratio of 0.8x might still make it look like a buy right now compared to the Hospitality industry in the United States, where around half of the companies have P/S ratios above 1.7x 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 Inspired Entertainment
How Has Inspired Entertainment Performed Recently?
Recent times haven't been great for Inspired Entertainment as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Inspired Entertainment will help you uncover what's on the horizon.Do Revenue Forecasts Match The Low P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as low as Inspired Entertainment's is when the company's growth is on track to lag the industry.
Taking a look back first, we see that the company managed to grow revenues by a handy 5.0% last year. Revenue has also lifted 15% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Looking ahead now, revenue is anticipated to slump, contracting by 8.9% during the coming year according to the six analysts following the company. That's not great when the rest of the industry is expected to grow by 19%.
With this information, we are not surprised that Inspired Entertainment is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.
What We Can Learn From Inspired Entertainment's P/S?
Inspired Entertainment's stock price has surged recently, but its but its P/S still remains modest. 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.
As we suspected, our examination of Inspired Entertainment's analyst forecasts revealed that its outlook for shrinking revenue 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
Before you settle on your opinion, we've discovered 3 warning signs for Inspired Entertainment (2 are potentially serious!) that you should be aware of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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.