Despegar.com, Corp. (NYSE:DESP) Stock Rockets 27% But Many Are Still Ignoring The Company

Despegar.com, Corp. (NYSE:DESP) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 150% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Despegar.com's price-to-sales (or "P/S") ratio of 1.4x right now seems quite "middle-of-the-road" compared to the Hospitality industry in the United States, where the median P/S ratio is around 1.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Despegar.com

How Despegar.com Has Been Performing

With revenue growth that's inferior to most other companies of late, Despegar.com has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

In order to justify its P/S ratio, Despegar.com would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered an exceptional 23% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 15% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 12% per year, which is noticeably less attractive.

With this information, we find it interesting that Despegar.com is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

Its shares have lifted substantially and now Despegar.com's P/S is back within range of the industry median. 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.

Looking at Despegar.com's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Despegar.com with six simple checks will allow you to discover any risks that could be an issue.

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.