Sound Group Inc. (NASDAQ:SOGP) shares have had a really impressive month, gaining 364% after a shaky period beforehand. The last month tops off a massive increase of 139% in the last year.

In spite of the firm bounce in price, Sound Group's price-to-sales (or "P/S") ratio of 0.1x might still make it look like a buy right now compared to the Entertainment industry in the United States, where around half of the companies have P/S ratios above 1.5x and even P/S above 6x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Sound Group

What Does Sound Group's P/S Mean For Shareholders?

For instance, Sound Group's receding revenue in recent times would have to be some food for thought. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. Those who are bullish on Sound Group will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sound Group will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Sound Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 1.9% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 4.1% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 15% growth in the next 12 months, the company's downward momentum based on recent medium-term revenue results is a sobering picture.

In light of this, it's understandable that Sound Group's P/S would sit below the majority of other companies. 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.

The Key Takeaway

The latest share price surge wasn't enough to lift Sound Group's P/S close to the industry median. 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's no surprise that Sound Group maintains its low P/S off the back of its sliding revenue over the medium-term. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises either. Given the current circumstances, it seems unlikely that the share price will experience any significant movement in either direction in the near future if recent medium-term revenue trends persist.

Plus, you should also learn about these 2 warning signs we've spotted with Sound Group (including 1 which makes us a bit uncomfortable).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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