The Market Lifts Les Hôtels de Paris SA (EPA:HDP) Shares 34% But It Can Do More

Les Hôtels de Paris SA (EPA:HDP) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 53% share price drop in the last twelve months.

In spite of the firm bounce in price, Les Hôtels de Paris may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.3x, considering almost half of all companies in the Hospitality industry in France have P/S ratios greater than 0.9x and even P/S higher than 3x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Les Hôtels de Paris

How Has Les Hôtels de Paris Performed Recently?

As an illustration, revenue has deteriorated at Les Hôtels de Paris over the last year, which is not ideal at all. One possibility is that the P/S is low because investors think the company won't do enough to avoid underperforming the broader industry in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Although there are no analyst estimates available for Les Hôtels de Paris, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Les Hôtels de Paris' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as Les Hôtels de Paris' is when the company's growth is on track to lag the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.2%. In spite of this, the company still managed to deliver immense revenue growth over the last three years. Accordingly, shareholders will be pleased, but also have some serious questions to ponder about the last 12 months.

This is in contrast to the rest of the industry, which is expected to grow by 7.8% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Les Hôtels de Paris' P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What Does Les Hôtels de Paris' P/S Mean For Investors?

Les Hôtels de Paris' stock price has surged recently, but its but its P/S still remains modest. 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 examination of Les Hôtels de Paris revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

Having said that, be aware Les Hôtels de Paris is showing 3 warning signs in our investment analysis, and 2 of those are potentially serious.

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.