Take Care Before Jumping Onto Destination Italia S.p.A. (BIT:DIT) Even Though It's 26% Cheaper

The Destination Italia S.p.A. (BIT:DIT) share price has fared very poorly over the last month, falling by a substantial 26%. The recent drop has obliterated the annual return, with the share price now down 2.7% over that longer period.

In spite of the heavy fall in price, there still wouldn't be many who think Destination Italia's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S in Italy's Hospitality industry is similar at about 0.6x. 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.

View our latest analysis for Destination Italia

What Does Destination Italia's Recent Performance Look Like?

Destination Italia certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Keen to find out how analysts think Destination Italia'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 Destination Italia?

Destination Italia's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. However, this wasn't enough as the latest three year period has seen the company endure a nasty 19% drop in revenue in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 65% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 4.9% each year, which is noticeably less attractive.

With this in consideration, we find it intriguing that Destination Italia'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 Destination Italia's P/S

Destination Italia's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

Looking at Destination Italia's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Before you settle on your opinion, we've discovered 3 warning signs for Destination Italia (2 are a bit concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on Destination Italia, 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.