When close to half the companies in the Infrastructure industry in Hong Kong have price-to-sales ratios (or "P/S") below 1.5x, you may consider Beijing Capital International Airport Company Limited (HKG:694) as a stock to potentially avoid with its 2.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Beijing Capital International Airport

How Has Beijing Capital International Airport Performed Recently?

Beijing Capital International Airport certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. 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 Beijing Capital International Airport will help you uncover what's on the horizon.

How Is Beijing Capital International Airport's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Beijing Capital International Airport's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 47%. The latest three year period has also seen an excellent 59% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 16% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 12% per year, which is noticeably less attractive.

With this information, we can see why Beijing Capital International Airport 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.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Beijing Capital International Airport's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 1 warning sign for Beijing Capital International Airport that you should be aware of.

If you're unsure about the strength of Beijing Capital International Airport's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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