Stock Analysis

International Hotel Investments p.l.c.'s (MTSE:IHI) Shareholders Might Be Looking For Exit

MTSE:IHI
Source: Shutterstock

It's not a stretch to say that International Hotel Investments p.l.c.'s (MTSE:IHI) price-to-sales (or "P/S") ratio of 1.2x right now seems quite "middle-of-the-road" for companies in the Hospitality industry in Malta, where the median P/S ratio is around 1x. 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.

Check out our latest analysis for International Hotel Investments

ps-multiple-vs-industry
MTSE:IHI Price to Sales Ratio vs Industry December 27th 2023

How International Hotel Investments Has Been Performing

With revenue growth that's exceedingly strong of late, International Hotel Investments has been doing very well. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic 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 International Hotel Investments will help you shine a light on its historical performance.

Is There Some Revenue Growth Forecasted For International Hotel Investments?

International Hotel Investments' 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.

If we review the last year of revenue growth, the company posted a terrific increase of 40%. The latest three year period has also seen an excellent 35% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 78% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that International Hotel Investments' P/S is comparable to that of its industry peers. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What We Can Learn From International Hotel Investments' P/S?

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.

Our examination of International Hotel Investments revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Before you take the next step, you should know about the 2 warning signs for International Hotel Investments that we have uncovered.

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.

Valuation is complex, but we're helping make it simple.

Find out whether International Hotel Investments is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis

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.