Tripadvisor, Inc.'s (NASDAQ:TRIP) Share Price Not Quite Adding Up

It's not a stretch to say that Tripadvisor, Inc.'s (NASDAQ:TRIP) price-to-sales (or "P/S") ratio of 1.1x right now seems quite "middle-of-the-road" for companies in the Interactive Media and Services 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.

View our latest analysis for Tripadvisor

How Has Tripadvisor Performed Recently?

With revenue growth that's inferior to most other companies of late, Tripadvisor has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

How Is Tripadvisor's Revenue Growth Trending?

Tripadvisor's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 8.2% last year. This was backed up an excellent period prior to see revenue up by 190% in total 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 5.9% per year as estimated by the analysts watching the company. 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. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

When you consider that Tripadvisor's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be 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. 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. Our free balance sheet analysis for Tripadvisor 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.