Some Confidence Is Lacking In SSAW Hotels & Resorts Group Co.,Ltd. (SZSE:301073) As Shares Slide 29%

SSAW Hotels & Resorts Group Co.,Ltd. (SZSE:301073) shares have had a horrible month, losing 29% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 21% share price drop.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about SSAW Hotels & Resorts GroupLtd's P/S ratio of 5.5x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in China is also close to 5.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for SSAW Hotels & Resorts GroupLtd

How Has SSAW Hotels & Resorts GroupLtd Performed Recently?

Recent times have been advantageous for SSAW Hotels & Resorts GroupLtd as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling 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 SSAW Hotels & Resorts GroupLtd.

What Are Revenue Growth Metrics Telling Us About The P/S?

The only time you'd be comfortable seeing a P/S like SSAW Hotels & Resorts GroupLtd's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 38% gain to the company's top line. The latest three year period has also seen an excellent 119% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 16% as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 31% growth forecast for the broader industry.

With this information, we find it interesting that SSAW Hotels & Resorts GroupLtd 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 SSAW Hotels & Resorts GroupLtd's P/S

Following SSAW Hotels & Resorts GroupLtd's share price tumble, its P/S is just clinging on to the industry median P/S. 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 look at the analysts forecasts of SSAW Hotels & Resorts GroupLtd's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about these 3 warning signs we've spotted with SSAW Hotels & Resorts GroupLtd.

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.

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.