Les Hôtels de Paris SA (EPA:HDP) Shares Fly 27% But Investors Aren't Buying For Growth

Les Hôtels de Paris SA (EPA:HDP) shares have continued their recent momentum with a 27% gain in the last month alone. The annual gain comes to 118% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, considering around half the companies operating in France's Hospitality industry have price-to-sales ratios (or "P/S") above 1.1x, you may still consider Les Hôtels de Paris as an solid investment opportunity with its 0.5x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Les Hôtels de Paris

How Has Les Hôtels de Paris Performed Recently?

With revenue growth that's exceedingly strong of late, Les Hôtels de Paris has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. Those who are bullish on Les Hôtels de Paris will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Les Hôtels de Paris will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Les Hôtels de Paris?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Les Hôtels de Paris' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 139%. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing that to the industry, which is predicted to deliver 5.7% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this information, we can see why Les Hôtels de Paris is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

What We Can Learn From Les Hôtels de Paris' P/S?

The latest share price surge wasn't enough to lift Les Hôtels de Paris' P/S close to the industry median. 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.

Our examination of Les Hôtels de Paris confirms that the company's revenue trends over the past three-year years are a key factor in its low price-to-sales ratio, as we suspected, given they fall short of current industry expectations. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Les Hôtels de Paris (at least 2 which are significant), and understanding them should be part of your investment process.

If these risks are making you reconsider your opinion on Les Hôtels de Paris, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.