Investors Still Aren't Entirely Convinced By TH International Limited's (NASDAQ:THCH) Revenues Despite 35% Price Jump

TH International Limited (NASDAQ:THCH) shares have had a really impressive month, gaining 35% after a shaky period beforehand. But the last month did very little to improve the 54% share price decline over the last year.

In spite of the firm bounce in price, TH International may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Hospitality industry in the United States have P/S ratios greater than 1.5x and even P/S higher than 4x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for TH International

How TH International Has Been Performing

Revenue has risen firmly for TH International recently, which is pleasing to see. One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future. Those who are bullish on TH International will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for TH International, 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 Low P/S?

TH International's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 13%. Pleasingly, revenue has also lifted 293% 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 recent medium-term revenue trajectory with the industry's one-year growth forecast of 13% shows it's noticeably more attractive.

With this in mind, we find it intriguing that TH International's P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite TH International's share price climbing recently, its P/S still lags most other companies. 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're very surprised to see TH International currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

There are also other vital risk factors to consider and we've discovered 4 warning signs for TH International (3 are concerning!) that you should be aware of before investing here.

If you're unsure about the strength of TH International's 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.