Hoteles City Express, S.A.B. de C.V. (BMV:HCITY) Stock Rockets 32% As Investors Are Less Pessimistic Than Expected

The Hoteles City Express, S.A.B. de C.V. (BMV:HCITY) share price has done very well over the last month, posting an excellent gain of 32%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.3% in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Hoteles City Express. de's P/S ratio of 0.7x, since the median price-to-sales (or "P/S") ratio for the Hospitality industry in Mexico is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Hoteles City Express. de

How Has Hoteles City Express. de Performed Recently?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Hoteles City Express. de has been doing quite well of late. Perhaps the market is expecting its current strong performance to taper off in accordance to the rest of the industry, which has kept the P/S contained. 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.

Want the full picture on analyst estimates for the company? Then our free report on Hoteles City Express. de will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, Hoteles City Express. de would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a decent 6.9% gain to the company's revenues. The latest three year period has also seen an excellent 134% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 9.3% each year during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 12% each year growth forecast for the broader industry.

With this in mind, we find it intriguing that Hoteles City Express. de's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does Hoteles City Express. de's P/S Mean For Investors?

Hoteles City Express. de's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look at the analysts forecasts of Hoteles City Express. de's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Having said that, be aware Hoteles City Express. de is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

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.