What You Can Learn From Grand Harbour Marina p.l.c.'s (MTSE:GHM) P/S

When close to half the companies in the Hospitality industry in Malta have price-to-sales ratios (or "P/S") below 1.3x, you may consider Grand Harbour Marina p.l.c. (MTSE:GHM) as a stock to potentially avoid with its 1.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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View our latest analysis for Grand Harbour Marina

How Has Grand Harbour Marina Performed Recently?

Recent times have been quite advantageous for Grand Harbour Marina as its revenue has been rising very briskly. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Grand Harbour Marina, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Grand Harbour Marina's Revenue Growth Trending?

In order to justify its P/S ratio, Grand Harbour Marina would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 101% gain to the company's top line. Pleasingly, revenue has also lifted 155% 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.

Comparing that to the industry, which is only predicted to deliver 8.1% 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 understandable that Grand Harbour Marina's P/S sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the wider industry.

The Final Word

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.

It's no surprise that Grand Harbour Marina can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 4 warning signs for Grand Harbour Marina (1 can't be ignored!) that you should be aware of before investing here.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.