When nearly half of the hospitality companies in the U.S. have a price-to-sales ratio (or “P/S”) of less than 1.3, one could Las Vegas Sands Corp. (NYSE:LVS) with a P/S ratio of 2.6x as a stock that may be worth avoiding. However, the P/E ratio might be high for a reason, and further research is needed to determine if it is justified.
See our latest analysis for Las Vegas Sands
NYSE:LVS Price-to-Sales Ratio Compared to Industry August 16, 2024
What is Las Vegas Sands’ recent performance?
With revenue growth that has outpaced most other companies recently, Las Vegas Sands has done relatively well. The price-to-earnings (P/E) ratio is probably so high because investors believe this strong revenue performance will continue. If it doesn’t, existing shareholders may be a little nervous about the profitability of the share price.
If you want to know what analysts are predicting for the future, you should check out our free View report on Las Vegas Sands.
What do the sales growth metrics tell us about the high P/E ratio?
Las Vegas Sands’ price-earnings ratio is typical of a company that is expected to deliver solid growth and, above all, outperform the industry.
Looking back, we can see that the company has grown its revenue by an impressive 68% over the past year. Encouragingly, thanks to the growth over the last 12 months, revenue has grown by 198% over the past three years. So, first of all, we can confirm that the company has done a great job of growing its revenue over this period.
Analysts who cover the company expect revenue to grow 6.3% per year over the next three years, well below the 11% annual growth forecast for the industry as a whole.
With that in mind, it’s alarming that Las Vegas Sands’ price-to-earnings ratio is higher than most other companies. Clearly, many investors in the company are far more optimistic than analysts suggest, and they’re not willing to let go of their shares at any price. Only the boldest would assume that these prices are sustainable, as this level of revenue growth is likely to weigh heavily on the share price at some point.
What can we learn from Las Vegas Sands’ P/E ratio?
We usually caution against reading too much into the price-to-sales ratio when making investment decisions, even though it can say a lot about what other market participants think about the company.
Although analysts are forecasting lower revenue growth for Las Vegas Sands than the industry, this does not seem to be impacting the price-to-sales ratio in the slightest. At the moment, we are not comfortable with the high price-to-earnings ratio, as the forecast future earnings cannot sustain such positive sentiment for long. This poses a significant risk to shareholders’ investments and poses the risk of potential investors paying an inflated premium.
You should always think about the risks. In this case, we have 2 warning signs for Las Vegas Sands identified that you should pay attention to.
If you are interested in strong companies that generate profits, then you should check out these free View a list of interesting companies that trade at a low P/E ratio (but have proven they can grow their earnings).
Valuation is complex, but we are here to simplify it.
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This Simply Wall St article is of a general nature. We comment based solely on historical data and analyst forecasts, using an unbiased methodology. Our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company news or qualitative material. Simply Wall St has no position in the stocks mentioned.
