Further Upside For Tabcorp Holdings Limited (ASX:TAH) Shares Could Introduce Price Risks After 36% Bounce

Tabcorp Holdings Limited (ASX:TAH) shareholders have had their patience rewarded with a 36% share price jump in the last month. The annual gain comes to 114% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, Tabcorp Holdings' price-to-sales (or "P/S") ratio of 0.8x might still make it look like a buy right now compared to the Hospitality industry in Australia, where around half of the companies have P/S ratios above 1.7x and even P/S above 4x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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Check out our latest analysis for Tabcorp Holdings

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

Recent times have been advantageous for Tabcorp Holdings as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. 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.

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How Is Tabcorp Holdings' Revenue Growth Trending?

In order to justify its P/S ratio, Tabcorp Holdings would need to produce sluggish growth that's trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. The solid recent performance means it was also able to grow revenue by 10% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 2.5% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 4.4% per year, which is not materially different.

With this information, we find it odd that Tabcorp Holdings is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

Despite Tabcorp Holdings' share price climbing recently, its P/S still lags most other companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It looks to us like the P/S figures for Tabcorp Holdings remain low despite growth that is expected to be in line with other companies in the industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Tabcorp Holdings with six simple checks.

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.