Melco International Development Limited's (HKG:200) Price Is Right But Growth Is Lacking

When you see that almost half of the companies in the Hospitality industry in Hong Kong have price-to-sales ratios (or "P/S") above 0.8x, Melco International Development Limited (HKG:200) looks to be giving off some buy signals with its 0.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for Melco International Development

How Has Melco International Development Performed Recently?

Melco International Development certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Is There Any Revenue Growth Forecasted For Melco International Development?

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

If we review the last year of revenue growth, the company posted a terrific increase of 180%. Pleasingly, revenue has also lifted 120% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 12% each year as estimated by the six analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 16% per annum, which is noticeably more attractive.

In light of this, it's understandable that Melco International Development's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Melco International Development's 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 expected, our analysis of Melco International Development's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Melco International Development with six simple checks will allow you to discover any risks that could be an issue.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.