Some Confidence Is Lacking In Tripadvisor, Inc.'s (NASDAQ:TRIP) P/S

There wouldn't be many who think Tripadvisor, Inc.'s (NASDAQ:TRIP) price-to-sales (or "P/S") ratio of 1.5x is worth a mention when the median P/S for the Interactive Media and Services industry in the United States is very similar. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Tripadvisor

How Has Tripadvisor Performed Recently?

With revenue growth that's superior to most other companies of late, Tripadvisor has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction 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.

How Is Tripadvisor's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 27%. The latest three year period has also seen an excellent 113% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 7.8% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 12% per year, which is noticeably more attractive.

With this information, we find it interesting that Tripadvisor is trading at a fairly similar P/S compared to the industry. 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

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 the analysts forecasts of Tripadvisor's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. 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. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Tripadvisor with six simple checks.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.