When you see that almost half of the companies in the Hospitality industry in China have price-to-sales ratios (or "P/S") above 5.6x, BTG Hotels (Group) Co., Ltd. (SHSE:600258) looks to be giving off very strong buy signals with its 2.5x P/S ratio. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for BTG Hotels (Group)

How BTG Hotels (Group) Has Been Performing

BTG Hotels (Group) could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

How Is BTG Hotels (Group)'s Revenue Growth Trending?

BTG Hotels (Group)'s P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 36%. The latest three year period has also seen a 27% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 19% during the coming year according to the analysts following the company. With the industry predicted to deliver 37% growth, the company is positioned for a weaker revenue result.

With this information, we can see why BTG Hotels (Group) is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does BTG Hotels (Group)'s P/S Mean For Investors?

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.

As expected, our analysis of BTG Hotels (Group)'s analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for BTG Hotels (Group) with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.