Why We're Not Concerned Yet About SSAW Hotels & Resorts Group Co.,Ltd.'s (SZSE:301073) 25% Share Price Plunge

The SSAW Hotels & Resorts Group Co.,Ltd. (SZSE:301073) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 33% share price drop.

In spite of the heavy fall in price, SSAW Hotels & Resorts GroupLtd may still be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 7.5x, since almost half of all companies in the Hospitality in China have P/S ratios under 5.3x and even P/S lower than 2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for SSAW Hotels & Resorts GroupLtd

How Has SSAW Hotels & Resorts GroupLtd Performed Recently?

SSAW Hotels & Resorts GroupLtd could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

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.

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

The only time you'd be truly comfortable seeing a P/S as high as SSAW Hotels & Resorts GroupLtd's is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 59%. The strong recent performance means it was also able to grow revenue by 117% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 39% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 19%, which is noticeably less attractive.

With this information, we can see why SSAW Hotels & Resorts GroupLtd is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does SSAW Hotels & Resorts GroupLtd's P/S Mean For Investors?

Despite the recent share price weakness, SSAW Hotels & Resorts GroupLtd's P/S remains higher than most other companies in the industry. 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.

Our look into SSAW Hotels & Resorts GroupLtd shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with SSAW Hotels & Resorts GroupLtd, and understanding them should be part of your investment process.

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.