Investors Holding Back On UTour Group Co., Ltd. (SZSE:002707)

When close to half the companies in the Hospitality industry in China have price-to-sales ratios (or "P/S") above 4.7x, you may consider UTour Group Co., Ltd. (SZSE:002707) as a highly attractive investment with its 1.3x P/S ratio. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for UTour Group

How UTour Group Has Been Performing

With revenue growth that's superior to most other companies of late, UTour Group has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Is There Any Revenue Growth Forecasted For UTour Group?

UTour Group's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 49% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 28% growth forecast for the broader industry.

With this information, we find it odd that UTour Group is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

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

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.

UTour Group's analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. There could be some major risk factors that are placing downward pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

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 UTour Group with six simple checks.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.