With a median price-to-sales (or "P/S") ratio of close to 0.8x 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 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Cathay Pacific Airways Has Been Performing

With revenue growth that's superior to most other companies of late, Cathay Pacific Airways has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Cathay Pacific Airways' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 85% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 101% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 11% per annum over the next three years. With the industry predicted to deliver 11% growth per year, the company is positioned for a comparable revenue result.

With this in mind, it makes sense that Cathay Pacific Airways' P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

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.

Our look at Cathay Pacific Airways' revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Plus, you should also learn about these 4 warning signs we've spotted with Cathay Pacific Airways (including 1 which shouldn't be ignored).

If these risks are making you reconsider your opinion on Cathay Pacific Airways, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.