Some Confidence Is Lacking In Tripadvisor, Inc. (NASDAQ:TRIP) As Shares Slide 27%

Tripadvisor, Inc. (NASDAQ:TRIP) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 50% share price drop.

In spite of the heavy fall in price, there still wouldn't be many who think Tripadvisor's price-to-sales (or "P/S") ratio of 1x is worth a mention when it essentially matches the median P/S in the United States' Interactive Media and Services industry. 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.

Check out our latest analysis for Tripadvisor

What Does Tripadvisor's Recent Performance Look Like?

Recent times haven't been great for Tripadvisor as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

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

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

Taking a look back first, we see that the company managed to grow revenues by a handy 2.6% last year. Pleasingly, revenue has also lifted 103% 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.

Looking ahead now, revenue is anticipated to climb by 6.7% each year during the coming three years according to the analysts following the company. With the industry predicted to deliver 12% growth each year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Tripadvisor's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Final Word

Tripadvisor's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

Given that Tripadvisor's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Tripadvisor that you need to be mindful of.

If you're unsure about the strength of Tripadvisor'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.