On the Beach Group plc's (LON:OTB) Subdued P/S Might Signal An Opportunity

It's not a stretch to say that On the Beach Group plc's (LON:OTB) price-to-sales (or "P/S") ratio of 1.4x right now seems quite "middle-of-the-road" for companies in the Hospitality industry in the United Kingdom, where the median P/S ratio is around 1.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for On the Beach Group

How Has On the Beach Group Performed Recently?

Recent times haven't been great for On the Beach Group as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think On the Beach Group's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For On the Beach Group?

The only time you'd be comfortable seeing a P/S like On the Beach Group's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.0% last year. The latest three year period has seen an incredible overall rise in revenue, even though the last 12 month performance was only fair. 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 11% as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 5.9%, which is noticeably less attractive.

With this in consideration, we find it intriguing that On the Beach Group's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On On the Beach Group's P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that On the Beach Group currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for On the Beach Group that you need to be mindful of.

If these risks are making you reconsider your opinion on On the Beach Group, 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.