What You Can Learn From Atour Lifestyle Holdings Limited's (NASDAQ:ATAT) P/S

When close to half the companies in the Hospitality industry in the United States have price-to-sales ratios (or "P/S") below 1.3x, you may consider Atour Lifestyle Holdings Limited (NASDAQ:ATAT) as a stock to avoid entirely with its 3.8x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Atour Lifestyle Holdings

What Does Atour Lifestyle Holdings' Recent Performance Look Like?

Recent times have been advantageous for Atour Lifestyle Holdings as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Atour Lifestyle Holdings.

How Is Atour Lifestyle Holdings' Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Atour Lifestyle Holdings' to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 106%. The strong recent performance means it was also able to grow revenue by 198% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 26% per annum as estimated by the twelve analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 12% each year, which is noticeably less attractive.

In light of this, it's understandable that Atour Lifestyle Holdings' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Atour Lifestyle Holdings' P/S

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.

We've established that Atour Lifestyle Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Hospitality industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Plus, you should also learn about this 1 warning sign we've spotted with Atour Lifestyle Holdings.

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.