A Piece Of The Puzzle Missing From The Royal Hotel, Limited's (TSE:9713) 25% Share Price Climb

The Royal Hotel, Limited (TSE:9713) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 11% in the last twelve months.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Royal Hotel's P/S ratio of 0.6x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in Japan is also close to 0.9x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Our free stock report includes 3 warning signs investors should be aware of before investing in Royal Hotel. Read for free now.

Check out our latest analysis for Royal Hotel

How Royal Hotel Has Been Performing

The recent revenue growth at Royal Hotel would have to be considered satisfactory if not spectacular. It might be that many expect the respectable revenue performance to only match most other companies over the coming period, which has kept the P/S from rising. If not, then at least existing shareholders probably aren't too pessimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Royal Hotel will help you shine a light on its historical performance.

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered a decent 3.5% gain to the company's revenues. The latest three year period has also seen an excellent 48% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 8.0% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Royal Hotel's P/S sits in line with the majority of other companies. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Royal Hotel's P/S

Royal Hotel appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We didn't quite envision Royal Hotel's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Royal Hotel you should know about.

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).

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

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.