Slammed 27% Country Club Hospitality & Holidays Limited (NSE:CCHHL) Screens Well Here But There Might Be A Catch

Country Club Hospitality & Holidays Limited (NSE:CCHHL) shares have had a horrible month, losing 27% after a relatively good period beforehand. Looking at the bigger picture, even after this poor month the stock is up 81% in the last year.

Following the heavy fall in price, Country Club Hospitality & Holidays' price-to-sales (or "P/S") ratio of 1.6x might make it look like a strong buy right now compared to the wider Hospitality industry in India, where around half of the companies have P/S ratios above 3.8x and even P/S above 9x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Country Club Hospitality & Holidays

How Has Country Club Hospitality & Holidays Performed Recently?

With revenue growth that's exceedingly strong of late, Country Club Hospitality & Holidays has been doing very well. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Country Club Hospitality & Holidays' earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

Country Club Hospitality & Holidays' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 35%. The strong recent performance means it was also able to grow revenue by 97% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Weighing that recent medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 26% shows it's about the same on an annualised basis.

With this information, we find it odd that Country Club Hospitality & Holidays is trading at a P/S lower than the industry. Apparently some shareholders are more bearish than recent times would indicate and have been accepting lower selling prices.

The Bottom Line On Country Club Hospitality & Holidays' P/S

Shares in Country Club Hospitality & Holidays have plummeted and its P/S has followed suit. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

The fact that Country Club Hospitality & Holidays currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Country Club Hospitality & Holidays you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.