Hyatt Hotels Corporation's (NYSE:H) Earnings Haven't Escaped The Attention Of Investors
When close to half the companies in the Hospitality industry in the United States have price-to-sales ratios (or "P/S") below 1.6x, you may consider Hyatt Hotels Corporation (NYSE:H) as a stock to avoid entirely with its 4.6x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
See our latest analysis for Hyatt Hotels
How Hyatt Hotels Has Been Performing
Hyatt Hotels could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hyatt Hotels.What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, Hyatt Hotels would need to produce outstanding growth that's well in excess of the industry.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 1.9%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 12% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.
Turning to the outlook, the next three years should generate growth of 38% per annum as estimated by the analysts watching the company. With the industry only predicted to deliver 14% each year, the company is positioned for a stronger revenue result.
In light of this, it's understandable that Hyatt Hotels' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Key Takeaway
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.
We've established that Hyatt Hotels maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Hospitality industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
Having said that, be aware Hyatt Hotels is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.