Revenues Not Telling The Story For Kuke Music Holding Limited (NYSE:KUKE) After Shares Rise 37%

Simply Wall St · 10/15 10:25

Kuke Music Holding Limited (NYSE:KUKE) shareholders are no doubt pleased to see that the share price has bounced 37% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 17% over that time.

After such a large jump in price, you could be forgiven for thinking Kuke Music Holding is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.8x, considering almost half the companies in the United States' Entertainment industry have P/S ratios below 1.5x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Kuke Music Holding

ps-multiple-vs-industry
NYSE:KUKE Price to Sales Ratio vs Industry October 15th 2024

What Does Kuke Music Holding's P/S Mean For Shareholders?

For example, consider that Kuke Music Holding's financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Kuke Music Holding, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Kuke Music Holding's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Kuke Music Holding's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.1%. This means it has also seen a slide in revenue over the longer-term as revenue is down 34% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 11% shows it's an unpleasant look.

In light of this, it's alarming that Kuke Music Holding's P/S sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.

The Bottom Line On Kuke Music Holding's P/S

Kuke Music Holding's P/S is on the rise since its shares have risen strongly. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Kuke Music Holding currently trades on a much higher than expected P/S since its recent revenues have been in decline over the medium-term. With a revenue decline on investors' minds, the likelihood of a souring sentiment is quite high which could send the P/S back in line with what we'd expect. Unless the the circumstances surrounding the recent medium-term improve, it wouldn't be wrong to expect a a difficult period ahead for the company's shareholders.

You should always think about risks. Case in point, we've spotted 4 warning signs for Kuke Music Holding you should be aware of, and 3 of them shouldn't be ignored.

If you're unsure about the strength of Kuke Music Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.