BTG Hotels (Group) Co., Ltd.'s (SHSE:600258) price-to-sales (or "P/S") ratio of 2.2x may look like a very appealing investment opportunity when you consider close to half the companies in the Hospitality industry in China have P/S ratios greater than 5.6x. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does BTG Hotels (Group)'s P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, BTG Hotels (Group) has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

BTG Hotels (Group)'s P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 53% last year. Pleasingly, revenue has also lifted 48% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 4.8% per annum as estimated by the analysts watching the company. That's shaping up to be materially lower than the 7.8% per year growth forecast for the broader industry.

With this in consideration, its clear as to why BTG Hotels (Group)'s P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From BTG Hotels (Group)'s P/S?

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.

As we suspected, our examination of BTG Hotels (Group)'s analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for BTG Hotels (Group) that you should be aware of.

If these risks are making you reconsider your opinion on BTG Hotels (Group), explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.