Optimistic Investors Push Dalian Sunasia Tourism Holding CO.,LTD (SHSE:600593) Shares Up 52% But Growth Is Lacking

Despite an already strong run, Dalian Sunasia Tourism Holding CO.,LTD (SHSE:600593) shares have been powering on, with a gain of 52% in the last thirty days. The annual gain comes to 124% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Dalian Sunasia Tourism HoldingLTD may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 11.1x, since almost half of all companies in the Hospitality industry in China have P/S ratios under 5.8x and even P/S lower than 2x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Dalian Sunasia Tourism HoldingLTD

How Has Dalian Sunasia Tourism HoldingLTD Performed Recently?

Dalian Sunasia Tourism HoldingLTD has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Dalian Sunasia Tourism HoldingLTD, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Dalian Sunasia Tourism HoldingLTD would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 21% gain to the company's top line. The latest three year period has also seen an excellent 101% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 33% shows it's noticeably less attractive.

With this information, we find it concerning that Dalian Sunasia Tourism HoldingLTD is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Dalian Sunasia Tourism HoldingLTD's P/S Mean For Investors?

Shares in Dalian Sunasia Tourism HoldingLTD have seen a strong upwards swing lately, which has really helped boost its P/S figure. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

The fact that Dalian Sunasia Tourism HoldingLTD currently trades on a higher P/S relative to the industry is an oddity, since its recent three-year growth is lower than the wider industry forecast. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Dalian Sunasia Tourism HoldingLTD is showing 4 warning signs in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.