Unpleasant Surprises Could Be In Store For Wynn Macau, Limited's (HKG:1128) Shares

Wynn Macau, Limited's (HKG:1128) price-to-sales (or "P/S") ratio of 1.3x may not look like an appealing investment opportunity when you consider close to half the companies in the Hospitality industry in Hong Kong have P/S ratios below 0.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for Wynn Macau

What Does Wynn Macau's Recent Performance Look Like?

Wynn Macau certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Wynn Macau.

How Is Wynn Macau's Revenue Growth Trending?

Wynn Macau's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The latest three year period has also seen an excellent 219% overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 11% per year over the next three years. That's shaping up to be materially lower than the 15% per year growth forecast for the broader industry.

In light of this, it's alarming that Wynn Macau's P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Final Word

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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Wynn Macau, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Wynn Macau that you should be aware of.

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.

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