When close to half of the companies in the hospitality industry in Australia have a price to sales ratio (or “P/S”) below 1.6x, you may consider Flight Center Travel Group Limited (ASX:FLT) as a stock to potentially avoid with its 2.1x P/S ratio. However, we need to dig a little deeper to determine if there is a rational basis for the high P/S.
See our latest review for Flight Center Travel Group
How is Flight Center Travel Group’s Recent Performance?
With revenue growth that is superior to most other companies of late, Flight Center Travel Group has done relatively well. It seems that many expect the strong revenue performance to persist, which has raised the P/S. You really hope so, otherwise you will be paying a pretty high price for no particular reason.
Want to know how analysts think Flight Center Travel Group’s future holds up for the industry? In this case, ours free report is a good place to start.
Is there enough revenue growth forecast for the flight center travel group?
To justify its P / S ratio, Flight Center Travel Group would need to produce an impressive growth in addition to the industry.
In retrospect, the last year delivered an outstanding 126% gain to the company’s top line. Revenues have also risen 20% in aggregate from three years ago, mainly thanks to the last 12 months of growth. Accordingly, shareholders should probably be satisfied with the growth rates of income in the medium term.
In the future now, revenues are expected to rise by 13% annually during the next three years according to analysts who follow the company. It is set to be materially higher than the 9.1% annual growth forecast for the wider industry.
In view of this, it is understandable that the P / S of Flight Center Travel Group is above most other companies. Apparently, shareholders are not willing to unload something that potentially sees a more prosperous future.
The Key Takeaway
While the price-to-sales ratio should not be the defining factor for whether to buy a stock or not, it is a capable barometer of revenue expectations.
As we suspected, our examination of analyst forecasts for Flight Center Travel Group revealed that its superior revenue outlook contributes to its high P/S. Now shareholders are comfortable with the P/S since they are pretty sure that future income is not threatened. Unless analysts have really missed the mark, these strong revenue forecasts should keep the stock price up.
There are also other vital risk factors to consider before investing and we have discovered them 2 warning signs for the flight center travel group that you should be aware of.
Of course, profitable companies with a history of large earnings growth are generally safer bets. So you might want to see this free collection of other companies that have reasonable P/E ratios and have grown a lot of earnings.
Valuation is complex, but we help simplify it.
Find out if Flight center travel group is potentially over or underrated by checking our comprehensive analysis, which includes fair value estimation, risks and warnings, dividends, insider transactions and financial health.
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This Simply Wall St article 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 into account your objectives, or your financial situation. We aim to deliver focused long-term analysis driven by fundamental data. Note that our analysis can not factor in the latest announcements of companies sensitive to price or quality material. Simply Wall St has no position in any of the stocks mentioned.
