OneSpaWorld Holdings Limited's (NASDAQ:OSW) Price Is Out Of Tune With Revenues

When you see that almost half of the companies in the Consumer Services industry in the United States have price-to-sales ratios (or "P/S") below 1.5x, OneSpaWorld Holdings Limited (NASDAQ:OSW) looks to be giving off some sell signals with its 2.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for OneSpaWorld Holdings

What Does OneSpaWorld Holdings' P/S Mean For Shareholders?

Recent times have been advantageous for OneSpaWorld 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, OneSpaWorld Holdings would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered an exceptional 184% gain to the company's top line. Revenue has also lifted 19% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 11% each year during the coming three years according to the four analysts following the company. That's shaping up to be materially lower than the 15% per annum growth forecast for the broader industry.

With this information, we find it concerning that OneSpaWorld Holdings is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Bottom Line On OneSpaWorld Holdings' P/S

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've concluded that OneSpaWorld Holdings currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

Plus, you should also learn about these 3 warning signs we've spotted with OneSpaWorld Holdings (including 1 which can't be ignored).

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

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.