There wouldn't be many who think Huangshan Tourism Development Co.,Ltd.'s (SHSE:600054) price-to-sales (or "P/S") ratio of 9.3x is worth a mention when the median P/S for the Hospitality industry in China is similar at about 8.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Huangshan Tourism DevelopmentLtd

What Does Huangshan Tourism DevelopmentLtd's P/S Mean For Shareholders?

Recent times have been pleasing for Huangshan Tourism DevelopmentLtd as its revenue has risen in spite of the industry's average revenue going into reverse. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. Those who are bullish on Huangshan Tourism DevelopmentLtd will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

Is There Some Revenue Growth Forecasted For Huangshan Tourism DevelopmentLtd?

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

If we review the last year of revenue growth, the company posted a worthy increase of 15%. However, this wasn't enough as the latest three year period has seen an unpleasant 29% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 77% as estimated by the five analysts watching the company. That's shaping up to be materially lower than the 90% growth forecast for the broader industry.

With this in mind, we find it intriguing that Huangshan Tourism DevelopmentLtd's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at the analysts forecasts of Huangshan Tourism DevelopmentLtd's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Before you settle on your opinion, we've discovered 1 warning sign for Huangshan Tourism DevelopmentLtd that you should be aware of.

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.

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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.