HUYA Inc. (NYSE:HUYA) shares have had a horrible month, losing 45% after a relatively good period beforehand. The recent drop has obliterated the annual return, with the share price now down 2.3% over that longer period.

After such a large drop in price, HUYA's price-to-sales (or "P/S") ratio of 0.9x might 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 1.4x and even P/S above 5x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for HUYA

What Does HUYA's P/S Mean For Shareholders?

HUYA hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on HUYA will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For HUYA?

In order to justify its P/S ratio, HUYA would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 24%. As a result, revenue from three years ago have also fallen 45% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 6.0% each year during the coming three years according to the analysts following the company. With the industry predicted to deliver 11% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's understandable that HUYA's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On HUYA's P/S

HUYA's recently weak share price has pulled its P/S back below other Entertainment companies. 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.

As we suspected, our examination of HUYA's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

And what about other risks? Every company has them, and we've spotted 1 warning sign for HUYA you should know about.

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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