Yatra Online, Inc. (NASDAQ:YTRA) shares have continued their recent momentum with a 26% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 37% over that time.

After such a large jump in price, when almost half of the companies in the United States' Hospitality industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider Yatra Online as a stock probably not worth researching with its 1.9x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

How Yatra Online Has Been Performing

For example, consider that Yatra Online's financial performance has been pretty ordinary lately as revenue growth is non-existent. One possibility is that the P/S is high because investors think the benign revenue growth will improve to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Enough Revenue Growth Forecasted For Yatra Online?

The only time you'd be truly comfortable seeing a P/S as high as Yatra Online's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. However, a few strong years before that means that it was still able to grow revenue by an impressive 198% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

This is in contrast to the rest of the industry, which is expected to grow by 13% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in consideration, it's not hard to understand why Yatra Online's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Yatra Online's P/S?

Yatra Online's P/S is on the rise since its shares have risen strongly. 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.

It's no surprise that Yatra Online can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Yatra Online has 1 warning sign we think you should be aware of.

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.