Investors Appear Satisfied With Mandarin Oriental International Limited's (SGX:M04) Prospects

When close to half the companies in the Hospitality industry in Singapore have price-to-sales ratios (or "P/S") below 1.9x, you may consider Mandarin Oriental International Limited (SGX:M04) as a stock to potentially avoid with its 3.8x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Mandarin Oriental International

How Has Mandarin Oriental International Performed Recently?

The recent revenue growth at Mandarin Oriental International would have to be considered satisfactory if not spectacular. It might be that many expect the reasonable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as high as Mandarin Oriental International's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a decent 6.2% gain to the company's revenues. Pleasingly, revenue has also lifted 189% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is only predicted to deliver 18% 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 Mandarin Oriental International'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 Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Mandarin Oriental International maintains its high P/S on the strength of its recent three-year growth being higher than the wider industry forecast, as expected. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Mandarin Oriental International you should know about.

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.