Despegar.com, Corp.'s (NYSE:DESP) 26% Jump Shows Its Popularity With Investors

Despite an already strong run, Despegar.com, Corp. (NYSE:DESP) shares have been powering on, with a gain of 26% in the last thirty days. The last month tops off a massive increase of 126% in the last year.

Although its price has surged higher, it's still not a stretch to say that Despegar.com's price-to-sales (or "P/S") ratio of 1.9x 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 1.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Despegar.com

What Does Despegar.com's Recent Performance Look Like?

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. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Despegar.com's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like Despegar.com's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 17% gain to the company's top line. The latest three year period has also seen an excellent 201% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 12% per year during the coming three years according to the six analysts following the company. That's shaping up to be similar to the 12% per annum growth forecast for the broader industry.

In light of this, it's understandable that Despegar.com's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

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.

Our look at Despegar.com's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Despegar.com that you should be aware of.

If these risks are making you reconsider your opinion on Despegar.com, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.