AmRest Holdings SE's (WSE:EAT) Share Price Not Quite Adding Up

There wouldn't be many who think AmRest Holdings SE's (WSE:EAT) price-to-sales (or "P/S") ratio of 0.5x is worth a mention when the median P/S for the Hospitality industry in Poland is similar at about 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for AmRest Holdings

How AmRest Holdings Has Been Performing

With revenue growth that's superior to most other companies of late, AmRest Holdings has been doing relatively well. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Keen to find out how analysts think AmRest Holdings' future stacks up against the industry? In that case, our free report is a great place to start.

How Is AmRest Holdings' Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 28%. The latest three year period has also seen an excellent 62% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 4.9% each year as estimated by the three analysts watching the company. With the industry predicted to deliver 81% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's curious that AmRest Holdings' P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

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.

Given that AmRest Holdings' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 6 warning signs for AmRest Holdings (of which 2 are concerning!) you should know about.

If you're unsure about the strength of AmRest Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.