SSAW Hotels & Resorts Group Co.,Ltd. (SZSE:301073) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. For any long-term shareholders, the last month ends a year to forget by locking in a 52% share price decline.

In spite of the heavy fall in price, SSAW Hotels & Resorts GroupLtd may still be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 6x, since almost half of all companies in the Hospitality in China have P/S ratios under 4.9x and even P/S lower than 1.9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

How SSAW Hotels & Resorts GroupLtd Has Been Performing

Recent times haven't been great for SSAW Hotels & Resorts GroupLtd as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

There's an inherent assumption that a company should outperform the industry for P/S ratios like SSAW Hotels & Resorts GroupLtd's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 59% gain to the company's top line. Pleasingly, revenue has also lifted 117% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 37% as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 28% growth forecast for the broader industry.

With this in mind, it's not hard to understand why SSAW Hotels & Resorts GroupLtd's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On SSAW Hotels & Resorts GroupLtd's P/S

Despite the recent share price weakness, SSAW Hotels & Resorts GroupLtd's P/S remains higher than most other companies in the industry. 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 we suspected, our examination of SSAW Hotels & Resorts GroupLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - SSAW Hotels & Resorts GroupLtd has 3 warning signs we think you should be aware of.

If you're unsure about the strength of SSAW Hotels & Resorts GroupLtd's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

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