Huangshan Tourism Development Co.,Ltd.'s (SHSE:600054) Business Is Yet to Catch Up With Its Share Price

It's not a stretch to say that Huangshan Tourism Development Co.,Ltd.'s (SHSE:600054) price-to-sales (or "P/S") ratio of 5.2x right now seems quite "middle-of-the-road" for companies in the Hospitality industry in China, where the median P/S ratio is around 5.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Huangshan Tourism DevelopmentLtd

What Does Huangshan Tourism DevelopmentLtd's P/S Mean For Shareholders?

Huangshan Tourism DevelopmentLtd certainly has been doing a good job lately as it's been growing revenue more 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.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Huangshan Tourism DevelopmentLtd.

Is There Some Revenue Growth Forecasted For Huangshan Tourism DevelopmentLtd?

In order to justify its P/S ratio, Huangshan Tourism DevelopmentLtd would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 98% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 99% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 19% during the coming year according to the three analysts following the company. That's shaping up to be materially lower than the 38% growth forecast for the broader industry.

With this information, we find it interesting that Huangshan Tourism DevelopmentLtd is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Huangshan Tourism DevelopmentLtd's P/S

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.

When you consider that Huangshan Tourism DevelopmentLtd's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Huangshan Tourism DevelopmentLtd with six simple checks on some of these key factors.

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.