There's Reason For Concern Over Elanor Investors Group's (ASX:ENN) Price

There wouldn't be many who think Elanor Investors Group's (ASX:ENN) price-to-sales (or "P/S") ratio of 1.4x is worth a mention when the median P/S for the Hospitality industry in Australia is similar at about 1.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Elanor Investors Group

How Has Elanor Investors Group Performed Recently?

Recent times have been advantageous for Elanor Investors Group as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Keen to find out how analysts think Elanor Investors Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For Elanor Investors Group?

In order to justify its P/S ratio, Elanor Investors Group would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 31%. Pleasingly, revenue has also lifted 120% 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 three years should bring diminished returns, with revenue decreasing 21% each year as estimated by the sole analyst watching the company. With the industry predicted to deliver 9.3% growth per annum, that's a disappointing outcome.

In light of this, it's somewhat alarming that Elanor Investors Group's P/S sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What Does Elanor Investors Group's P/S Mean For Investors?

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our check of Elanor Investors Group's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

There are also other vital risk factors to consider and we've discovered 6 warning signs for Elanor Investors Group (2 are a bit concerning!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Elanor Investors Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.