With a median price-to-sales (or "P/S") ratio of close to 0.7x in the Hospitality industry in Hong Kong, you could be forgiven for feeling indifferent about The Hongkong and Shanghai Hotels, Limited's (HKG:45) P/S ratio of 1x. 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.

How Has Hongkong and Shanghai Hotels Performed Recently?

With revenue growth that's exceedingly strong of late, Hongkong and Shanghai Hotels has been doing very well. It might be that many expect the strong revenue performance to wane, which has kept the share price, and thus the P/S ratio, from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Is There Some Revenue Growth Forecasted For Hongkong and Shanghai Hotels?

The only time you'd be comfortable seeing a P/S like Hongkong and Shanghai Hotels' is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 106%. Pleasingly, revenue has also lifted 289% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 17% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's curious that Hongkong and Shanghai Hotels' P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Hongkong and Shanghai Hotels' P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Hongkong and Shanghai Hotels currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to see the likelihood of revenue fluctuations in the future.

It is also worth noting that we have found 1 warning sign for Hongkong and Shanghai Hotels that you need to take into consideration.

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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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.