When you see that almost half of the companies in the Hospitality industry in Germany have price-to-sales ratios (or "P/S") below 1x, LS Invest AG (HMSE:IFA) looks to be giving off some sell signals with its 2.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
Check out our latest analysis for LS Invest
How Has LS Invest Performed Recently?
With revenue growth that's exceedingly strong of late, LS Invest has been doing very well. Perhaps the market is expecting future revenue performance to outperform the wider market, which has seemingly got people interested in the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.
Although there are no analyst estimates available for LS Invest, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.
How Is LS Invest's Revenue Growth Trending?
LS Invest's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.
Taking a look back first, we see that the company grew revenue by an impressive 67% last year. The latest three year period has also seen an excellent 61% 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.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 1,251% shows it's noticeably less attractive.
In light of this, it's alarming that LS Invest's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh heavily on the share price eventually.
What Does LS Invest's P/S Mean For Investors?
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our examination of LS Invest revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.