Investors Appear Satisfied With Spring Airlines Co., Ltd.'s (SHSE:601021) Prospects

When you see that almost half of the companies in the Airlines industry in China have price-to-sales ratios (or "P/S") below 0.8x, Spring Airlines Co., Ltd. (SHSE:601021) looks to be giving off some sell signals with its 2.7x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Spring Airlines

How Spring Airlines Has Been Performing

With revenue growth that's superior to most other companies of late, Spring Airlines has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Spring Airlines will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Spring Airlines?

In order to justify its P/S ratio, Spring Airlines would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 95% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 109% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 18% as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 14%, which is noticeably less attractive.

In light of this, it's understandable that Spring Airlines' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Spring Airlines' P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Spring Airlines' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Spring Airlines, and understanding them should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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.

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