Despite an already strong run, MakeMyTrip Limited (NASDAQ:MMYT) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 117% in the last year.
Following the firm bounce in price, given around half the companies in the United States' Hospitality industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider MakeMyTrip as a stock to avoid entirely with its 8.6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
NasdaqGS:MMYT Price to Sales Ratio vs Industry February 9th 2024
How MakeMyTrip Has Been Performing
Recent revenue growth for MakeMyTrip has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think MakeMyTrip's future stacks up against the industry? In that case, our free report is a great place to start.
How Is MakeMyTrip's Revenue Growth Trending?
MakeMyTrip's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
Taking a look back first, we see that the company grew revenue by an impressive 37% last year. The latest three year period has also seen an excellent 285% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to climb by 27% during the coming year according to the nine analysts following the company. With the industry only predicted to deliver 15%, the company is positioned for a stronger revenue result.
In light of this, it's understandable that MakeMyTrip's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What Does MakeMyTrip's P/S Mean For Investors?
Shares in MakeMyTrip have seen a strong upwards swing lately, which has really helped boost its P/S figure. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
As we suspected, our examination of MakeMyTrip's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
Having said that, be aware MakeMyTrip is showing 1 warning sign in our investment analysis, you should know about.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
