Investors Holding Back On iHeartMedia, Inc. (NASDAQ:IHRT)
When you see that almost half of the companies in the Media industry in the United States have price-to-sales ratios (or "P/S") above 1x, iHeartMedia, Inc. (NASDAQ:IHRT) looks to be giving off some buy signals with its 0.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
See our latest analysis for iHeartMedia
What Does iHeartMedia's P/S Mean For Shareholders?
Recent revenue growth for iHeartMedia has been in line with the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so 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 iHeartMedia.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should underperform the industry for P/S ratios like iHeartMedia's to be considered reasonable.
Retrospectively, the last year delivered a decent 5.0% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 5.8% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.
Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 2.7% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 4.6% each year, which is not materially different.
In light of this, it's peculiar that iHeartMedia's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.
What Does iHeartMedia's P/S Mean For Investors?
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.
It looks to us like the P/S figures for iHeartMedia remain low despite growth that is expected to be in line with other companies in the industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for iHeartMedia (1 is significant) you should be aware of.
If you're unsure about the strength of iHeartMedia'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.
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