What Shangri-La Asia Limited's (HKG:69) P/S Is Not Telling You

With a median price-to-sales (or "P/S") ratio of close to 0.8x in the Hospitality industry in Hong Kong, you could be forgiven for feeling indifferent about Shangri-La Asia Limited's (HKG:69) P/S ratio of 1.2x. 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.

See our latest analysis for Shangri-La Asia

How Shangri-La Asia Has Been Performing

With revenue growth that's inferior to most other companies of late, Shangri-La Asia has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Shangri-La Asia will help you uncover what's on the horizon.

How Is Shangri-La Asia's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Shangri-La Asia's is when the company's growth is tracking the industry closely.

If we review the last year of revenue growth, the company posted a terrific increase of 46%. The latest three year period has also seen an excellent 107% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 7.1% per year during the coming three years according to the six analysts following the company. That's shaping up to be materially lower than the 15% each year growth forecast for the broader industry.

With this information, we find it interesting that Shangri-La Asia is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What Does Shangri-La Asia's P/S Mean For Investors?

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.

Given that Shangri-La Asia's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about this 1 warning sign we've spotted with Shangri-La Asia.

If you're unsure about the strength of Shangri-La Asia's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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