When you see that almost half of the companies in the Consumer Services industry in the United States have price-to-sales ratios (or "P/S") below 1.4x, OneSpaWorld Holdings Limited (NASDAQ:OSW) looks to be giving off some sell signals with its 2.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

What Does OneSpaWorld Holdings' P/S Mean For Shareholders?

Recent times haven't been great for OneSpaWorld Holdings as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

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

OneSpaWorld Holdings' 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 19% last year. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 9.2% each year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 19% each year, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that OneSpaWorld Holdings' P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From OneSpaWorld Holdings' P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've concluded that OneSpaWorld Holdings currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.

And what about other risks? Every company has them, and we've spotted 2 warning signs for OneSpaWorld Holdings you should know about.

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

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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.