Stingray Group's High P/S Ratio: A Growth-Driven Premium Worth Paying

In an era where valuation multiples often spark heated debates among investors, Stingray Group Inc. (RAY.A) stands out as a compelling case study. Despite its Price-to-Sales (P/S) ratio of 1.7x—significantly higher than the 0.6x industry average—the company's fundamentals justify this premium. A blend of robust revenue growth, improving profitability, and strategic initiatives positions Stingray as a buy, even at current valuations. Let's dissect why this Canadian media giant is primed to deliver long-term returns.

Revenue Growth Outpaces Industry by 5x

Stingray's second-quarter 2025 results underscore its dominance. Revenue surged 13.4% year-over-year to $93.6 million, fueled by a 15.6% organic growth in its core Broadcast and Recurring Commercial Music segment. This segment now accounts for 65% of total revenue, with FAST channels and retail media partnerships driving a 66% spike in advertising sales. Compare this to the broader Canadian media industry's projected 1% revenue growth for 2025. Stingray's 12% annualized revenue growth over five years has generated a staggering 136% total shareholder return—proof that its premium pricing is backed by execution.

Profitability Improves Despite Headwinds

While net income dipped to $5.8 million in Q2 due to unrealized losses on financial instruments, adjusted metrics tell a stronger story. Adjusted EBITDA rose 15.2% to $34.0 million, with margins expanding to 36.3% of revenue. The Broadcasting segment delivered a 41% EBITDA margin, while adjusted net income jumped 14.4% to $16.7 million. Management has also prioritized debt reduction, lowering the net debt-to-EBITDA ratio to 2.72x—its lowest in years.

This operational discipline is critical. Even as international revenue dipped 5.9% and the corporate segment faced higher costs, Stingray's core business remains a profit machine. With FAST channel growth projected to sustain for 8–16 quarters, the path to margin expansion is clear.

Dividends and Share Buybacks Reinforce Value

Stingray's 5.7% dividend yield—over five times the industry average—offers immediate income for investors. The company's commitment to returning capital is further evident in its aggressive buyback program: it repurchased $2.5 million in shares in Q2 alone, up from $0.6 million a year earlier. With a 2.72x leverage ratio and $19.2 million in operating cash flow, Stingray has ample room to continue rewarding shareholders.

Why the High P/S Ratio Is Justified

Critics might argue that a 1.7x P/S ratio is excessive. But consider this:
- Growth is visible and scalable: FAST channels and retail media partnerships are not one-off wins. Advertising revenue in the Broadcast segment has now grown 45% year-over-year for two straight quarters, and partnerships with automakers like BMW and Ford signal long-term in-car entertainment monetization.
- Analyst forecasts back the premium: The 7.3% average industry revenue growth estimate pales against Stingray's 12% trajectory, with consensus EPS growth at 30.8% annually. Analysts have raised price targets to C$13.50, implying a 22% upside from current levels.
- Defensible moat: Stingray's content library and distribution deals with TV manufacturers (e.g., Vizio) and retailers (e.g., Sobi) create barriers to entry. Its FAST channels now reach 10 million households, a base that's growing steadily.

Risks to Consider

• Execution in U.S. markets: The in-store audio segment in the U.S. remains a work in progress, requiring sustained client wins to justify its investment.
• Debt management: While leverage has improved, the 2.72x ratio is still elevated. A recession or ad spend slowdown could pressure margins.

Investment Thesis: Buy with a 5-Year Horizon

Stingray's valuation is a function of its sustainable growth profile, not just current multiples. The company is trading at 1.7x P/S, but with a 35% EBITDA margin target and a 12% revenue CAGR, its trajectory aligns with high-growth tech peers.

The stock has underperformed the broader market in recent months, offering a buying opportunity. With a 5.7% dividend yield, downside protection is baked in. For investors with a multi-year horizon, Stingray's FAST channel dominance, dividend resilience, and strategic in-car partnerships make it a rare media stock capable of compounding value.

Final Call: Buy Stingray Group

The math is straightforward: a company growing revenue at 12% annually, delivering 30% EPS growth, and paying a 5.7% dividend shouldn't be dismissed for its P/S ratio. Stingray's execution in high-margin digital advertising and its moat-building partnerships justify this premium. While risks exist, the upside for long-term investors—driven by FAST scalability and margin expansion—is far greater.

Price Target: C$13.50 (22% upside)
Hold for: 3–5 years
Key Catalyst: FAST channel subscriber growth and in-car entertainment revenue ramp-up.

Investment decisions should consider individual risk tolerance and financial goals. Always conduct due diligence.