Why Investors Shouldn't Be Surprised By Tuniu Corporation's (NASDAQ:TOUR) 33% Share Price Surge

Tuniu Corporation (NASDAQ:TOUR) shares have continued their recent momentum with a 33% gain in the last month alone. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 19% in the last twelve months.

Since its price has surged higher, you could be forgiven for thinking Tuniu is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.2x, considering almost half the companies in the United States' Hospitality industry have P/S ratios below 1.3x. 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.

See our latest analysis for Tuniu

What Does Tuniu's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Tuniu has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Tuniu will help you uncover what's on the horizon.

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

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

Retrospectively, the last year delivered an exceptional 140% gain to the company's top line. Still, revenue has fallen 2.0% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 32% per annum during the coming three years according to the sole analyst following the company. That's shaping up to be materially higher than the 12% per year growth forecast for the broader industry.

With this information, we can see why Tuniu is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Tuniu's P/S Mean For Investors?

The large bounce in Tuniu's shares has lifted the company's P/S handsomely. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Tuniu 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Tuniu that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.