Zee Entertainment Enterprises Limited’s (NSE:ZEEL) Shareholders Might Be Looking For Exit

With a median price-to-sales (or “P/S”) ratio of close to 2.2x in the Media industry in India, you could be forgiven for feeling indifferent about Zee Entertainment Enterprises Limited’s (NSE:ZEEL) P/S ratio of 1.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for Zee Entertainment Enterprises

What Does Zee Entertainment Enterprises’ P/S Mean For Shareholders?

With revenue growth that’s inferior to most other companies of late, Zee Entertainment Enterprises has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You’d really hope so, otherwise you’re paying a relatively elevated price for a company with this sort of growth profile.

If you’d like to see what analysts are forecasting going forward, you should check out our free report on Zee Entertainment Enterprises.

How Is Zee Entertainment Enterprises’ Revenue Growth Trending?

The only time you’d be comfortable seeing a P/S like Zee Entertainment Enterprises’ is when the company’s growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 3.3% gain to the company’s revenues. The latest three year period has also seen a 11% overall rise in revenue, aided somewhat by its short-term performance. 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 6.7% each year during the coming three years according to the analysts following the company. With the industry predicted to deliver 9.3% growth per year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Zee Entertainment Enterprises’ P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Zee Entertainment Enterprises’ P/S Mean For Investors?

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.

Given that Zee Entertainment Enterprises’ revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren’t confident in the P/S as the predicted future revenues aren’t likely to support a more positive sentiment for long. This places shareholders’ investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about these 3 warning signs we’ve spotted with Zee Entertainment Enterprises.

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).

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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.