The International Entertainment Corporation (HKG:1009) share price has done very well over the last month, posting an excellent gain of 43%. Taking a wider view, although not as strong as the last month, the full year gain of 21% is also fairly reasonable.

Since its price has surged higher, you could be forgiven for thinking International Entertainment is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 7.2x, considering almost half the companies in Hong Kong's Real Estate industry have P/S ratios below 0.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for International Entertainment

What Does International Entertainment's Recent Performance Look Like?

We'd have to say that with no tangible growth over the last year, International Entertainment's revenue has been unimpressive. It might be that many are expecting an improvement to the uninspiring revenue performance over the coming period, which has kept the P/S from collapsing. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

How Is International Entertainment's Revenue Growth Trending?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Although pleasingly revenue has lifted 224% in aggregate from three years ago, notwithstanding the last 12 months. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

This is in contrast to the rest of the industry, which is expected to grow by 5.8% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in consideration, it's not hard to understand why International Entertainment's P/S is high relative to its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Key Takeaway

Shares in International Entertainment have seen a strong upwards swing lately, which has really helped boost its P/S figure. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It's no surprise that International Entertainment can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for International Entertainment that you should be aware of.

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

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