Market Might Still Lack Some Conviction On Pavillon Holdings Ltd. (SGX:596) Even After 54% Share Price Boost

Those holding Pavillon Holdings Ltd. (SGX:596) shares would be relieved that the share price has rebounded 54% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 51% share price decline over the last year.

Although its price has surged higher, it's still not a stretch to say that Pavillon Holdings' price-to-sales (or "P/S") ratio of 1.6x right now seems quite "middle-of-the-road" compared to the Hospitality industry in Singapore, where the median P/S ratio is around 1.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Our free stock report includes 4 warning signs investors should be aware of before investing in Pavillon Holdings. Read for free now.

Check out our latest analysis for Pavillon Holdings

How Pavillon Holdings Has Been Performing

For example, consider that Pavillon Holdings' financial performance has been poor lately as its revenue has been in decline. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

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

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

Retrospectively, the last year delivered a frustrating 1.8% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 88% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the industry, which is expected to grow by 16% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Pavillon Holdings is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Bottom Line On Pavillon Holdings' P/S

Its shares have lifted substantially and now Pavillon Holdings' P/S is back within range of the industry median. 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 Pavillon Holdings' 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. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 4 warning signs for Pavillon Holdings (2 shouldn't be ignored!) that you need to take into consideration.

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.

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.