With MakeMyTrip Limited (NASDAQ:MMYT) It Looks Like You'll Get What You Pay For
When you see that almost half of the companies in the Hospitality industry in the United States have price-to-sales ratios (or "P/S") below 1.7x, MakeMyTrip Limited (NASDAQ:MMYT) looks to be giving off strong sell signals with its 4.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
Check out our latest analysis for MakeMyTrip
What Does MakeMyTrip's P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, MakeMyTrip has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on analyst estimates for the company? Then our free report on MakeMyTrip will help you uncover what's on the horizon.
How Is MakeMyTrip's Revenue Growth Trending?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like MakeMyTrip's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 81% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 46% during the coming year according to the eight analysts following the company. That's shaping up to be materially higher than the 31% growth forecast for the broader industry.
With this in mind, it's not hard to understand why MakeMyTrip's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What Does MakeMyTrip's P/S Mean For Investors?
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.
Our look into MakeMyTrip shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for MakeMyTrip 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.
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