SSAW Hotels & Resorts Group Co.,Ltd. (SZSE:301073) Stocks Shoot Up 34% But Its P/S Still Looks Reasonable

SSAW Hotels & Resorts Group Co.,Ltd. (SZSE:301073) shares have had a really impressive month, gaining 34% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 19% over that time.

Since its price has surged higher, SSAW Hotels & Resorts GroupLtd's price-to-sales (or "P/S") ratio of 6x might make it look like a sell right now compared to the wider Hospitality industry in China, where around half of the companies have P/S ratios below 4.7x and even P/S below 1.8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

See our latest analysis for SSAW Hotels & Resorts GroupLtd

How SSAW Hotels & Resorts GroupLtd Has Been Performing

Recent times haven't been great for SSAW Hotels & Resorts GroupLtd as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on SSAW Hotels & Resorts GroupLtd will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For SSAW Hotels & Resorts GroupLtd?

In order to justify its P/S ratio, SSAW Hotels & Resorts GroupLtd would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 52%. Pleasingly, revenue has also lifted 105% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 33% during the coming year according to the four analysts following the company. That's shaping up to be materially higher than the 28% growth forecast for the broader industry.

In light of this, it's understandable that SSAW Hotels & Resorts GroupLtd's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

SSAW Hotels & Resorts GroupLtd shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

As we suspected, our examination of SSAW Hotels & Resorts GroupLtd's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 3 warning signs for SSAW Hotels & Resorts GroupLtd (1 is potentially serious!) that you should be aware of.

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.