With a median price-to-sales (or "P/S") ratio of close to 0.9x in the Airlines industry in Hong Kong, you could be forgiven for feeling indifferent about Cathay Pacific Airways Limited's (HKG:293) P/S ratio of 0.7x. 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.

View our latest analysis for Cathay Pacific Airways

How Has Cathay Pacific Airways Performed Recently?

Recent times haven't been great for Cathay Pacific Airways as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For Cathay Pacific Airways?

In order to justify its P/S ratio, Cathay Pacific Airways would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 58% gain to the company's top line. Still, revenue has fallen 6.2% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 17% per annum over the next three years. That's shaping up to be materially higher than the 11% per year growth forecast for the broader industry.

In light of this, it's curious that Cathay Pacific Airways' P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

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.

We've established that Cathay Pacific Airways currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Cathay Pacific Airways is showing 1 warning sign in our investment analysis, 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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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.