MakeMyTrip Limited's (NASDAQ:MMYT) 26% Cheaper Price Remains In Tune With Revenues
MakeMyTrip Limited (NASDAQ:MMYT) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 43% share price drop.
In spite of the heavy fall in price, given around half the companies in the United States' Hospitality industry have price-to-sales ratios (or "P/S") below 1.6x, you may still consider MakeMyTrip as a stock to avoid entirely with its 5.7x 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.
View our latest analysis for MakeMyTrip
What Does MakeMyTrip's P/S Mean For Shareholders?
MakeMyTrip could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. 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.Do Revenue Forecasts Match The High P/S Ratio?
In order to justify its P/S ratio, MakeMyTrip would need to produce outstanding growth that's well in excess of the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 11%. The latest three year period has also seen an excellent 95% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.
Looking ahead now, revenue is anticipated to climb by 23% during the coming year according to the nine analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 19%, which is noticeably less attractive.
With this information, we can see why MakeMyTrip is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From MakeMyTrip's P/S?
Even after such a strong price drop, MakeMyTrip's P/S still exceeds the industry median significantly. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
As we suspected, our examination of MakeMyTrip's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 3 warning signs for MakeMyTrip (1 can't be ignored) you should be aware of.
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.