Western Regions Tourism Development Co.,Ltd (SZSE:300859) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 10% over that time.
Since its price has surged higher, Western Regions Tourism DevelopmentLtd's price-to-sales (or "P/S") ratio of 16.3x might make it look like a strong sell right now compared to other companies in the Hospitality industry in China, where around half of the companies have P/S ratios below 6x and even P/S below 2x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
How Western Regions Tourism DevelopmentLtd Has Been Performing
Recent times have been quite advantageous for Western Regions Tourism DevelopmentLtd as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors' willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Western Regions Tourism DevelopmentLtd's earnings, revenue and cash flow.
What Are Revenue Growth Metrics Telling Us About The High P/S?
Western Regions Tourism DevelopmentLtd'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.
Retrospectively, the last year delivered an exceptional 162% gain to the company's top line. The latest three year period has also seen an excellent 123% 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.
Comparing that to the industry, which is predicted to deliver 35% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.
With this in mind, we find it worrying that Western Regions Tourism DevelopmentLtd's P/S exceeds that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
What Does Western Regions Tourism DevelopmentLtd's P/S Mean For Investors?
Shares in Western Regions Tourism DevelopmentLtd have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.
The fact that Western Regions Tourism DevelopmentLtd currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. When we observe slower-than-industry revenue growth alongside a high P/S ratio, we assume there to be a significant risk of the share price decreasing, which would result in a lower P/S ratio. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.
You always need to take note of risks, for example - Western Regions Tourism DevelopmentLtd has 1 warning sign we think you should be aware of.
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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由於價格飆升,與中國酒店業的其他公司相比,Western Regions Tourism DevelopmentLtd的市銷率(或 “市盈率”)爲16.3倍,這可能使其看起來像是強勁的拋售。在中國,大約一半的公司的市銷率低於6倍,甚至低於2倍的市銷率也很常見。但是,我們需要更深入地挖掘,以確定市銷售率大幅上升是否有合理的依據。
Western Regions Tourism DevelopmentLtd目前的市銷率高於該行業,這一事實很奇怪,因爲其最近三年的增長低於整個行業的預測。當我們觀察到收入增長慢於行業且市銷率高時,我們假設存在股價下跌的巨大風險,這將導致市銷率降低。除非公司的中期業績有顯著改善,否則很難防止市銷率下降到更合理的水平。