The Pavillon Holdings Ltd. (SGX:596) share price has softened a substantial 30% over the previous 30 days, handing back much of the gains the stock has made lately.    The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 59% loss during that time.  

Following the heavy fall in price, Pavillon Holdings may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.1x, since almost half of all companies in the Hospitality industry in Singapore have P/S ratios greater than 2x and even P/S higher than 4x are not unusual.   Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.  

SGX:596 Price to Sales Ratio vs Industry February 4th 2024

What Does Pavillon Holdings' P/S Mean For Shareholders?

Pavillon Holdings certainly has been doing a great job lately as it's been growing its revenue at a really rapid pace.   It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio.  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 out of favour.    

Although there are no analyst estimates available for Pavillon Holdings, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.  

Is There Any Revenue Growth Forecasted For Pavillon Holdings?  

Pavillon Holdings' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.  

Retrospectively, the last year delivered an exceptional 40% gain to the company's top line.   Pleasingly, revenue has also lifted 78% in aggregate from three years ago, thanks to the last 12 months of growth.  So we can start by confirming that the company has done a great job of growing revenue over that time.  

When compared to the industry's one-year growth forecast of 18%, the most recent medium-term revenue trajectory is noticeably more alluring

In light of this, it's peculiar that Pavillon Holdings' P/S sits below the majority of other companies.  Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.  

The Key Takeaway

The southerly movements of Pavillon Holdings' shares means its P/S is now sitting at a pretty low level.      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're very surprised to see Pavillon Holdings currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast.  When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio.  At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.    

Before you take the next step, you should know about the 2 warning signs for Pavillon Holdings (1 shouldn't be ignored!) that we have uncovered.  

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.