Yahoo Finance Getting In Cheap On Portillo's Inc. (NASDAQ:PTLO) Might Be Difficult
With a median price-to-sales (or "P/S") ratio of close to 1.3x in the Hospitality industry in the United States, you could be forgiven for feeling indifferent about Portillo's Inc.'s (NASDAQ:PTLO) P/S ratio of 1.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
View our latest analysis for Portillo's
What Does Portillo's' Recent Performance Look Like?
Portillo's could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
Want the full picture on analyst estimates for the company? Then our free report on Portillo's will help you uncover what's on the horizon.
How Is Portillo's' Revenue Growth Trending?
The only time you'd be comfortable seeing a P/S like Portillo's' is when the company's growth is tracking the industry closely.
Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. The latest three year period has also seen an excellent 41% 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.
Turning to the outlook, the next year should generate growth of 16% as estimated by the ten analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 17%, which is not materially different.
With this in mind, it makes sense that Portillo's' P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.
What Does Portillo's' P/S Mean For Investors?
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
A Portillo's' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Hospitality industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.
It is also worth noting that we have found 1 warning sign for Portillo's that you need to take into consideration.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.
