Hainan Meilan International Airport Company Limited (HKG:357) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.
Although its price has surged higher, there still wouldn't be many who think Hainan Meilan International Airport's price-to-sales (or "P/S") ratio of 1.7x is worth a mention when the median P/S in Hong Kong's Infrastructure industry is similar at about 1.5x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
View our latest analysis for Hainan Meilan International Airport
How Hainan Meilan International Airport Has Been Performing
With revenue growth that's superior to most other companies of late, Hainan Meilan International Airport has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
Keen to find out how analysts think Hainan Meilan International Airport's future stacks up against the industry? In that case, our free report is a great place to start.What Are Revenue Growth Metrics Telling Us About The P/S?
There's an inherent assumption that a company should be matching the industry for P/S ratios like Hainan Meilan International Airport's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 37% gain to the company's top line. The latest three year period has also seen an excellent 31% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 18% over the next year. That's shaping up to be materially higher than the 3.1% growth forecast for the broader industry.
In light of this, it's curious that Hainan Meilan International Airport's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.
The Bottom Line On Hainan Meilan International Airport's P/S
Hainan Meilan International Airport appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.
Despite enticing revenue growth figures that outpace the industry, Hainan Meilan International Airport's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Hainan Meilan International Airport that you should be aware of.
If these risks are making you reconsider your opinion on Hainan Meilan International Airport, 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.