Investors Aren't Entirely Convinced By Foxtons Group plc's (LON:FOXT) Revenues
With a price-to-sales (or "P/S") ratio of 0.8x Foxtons Group plc (LON:FOXT) may be sending bullish signals at the moment, given that almost half of all the Real Estate companies in the United Kingdom have P/S ratios greater than 2.6x and even P/S higher than 8x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
Check out our latest analysis for Foxtons Group
How Foxtons Group Has Been Performing
There hasn't been much to differentiate Foxtons Group's and the industry's revenue growth lately. One possibility is that the P/S ratio is low because investors think this modest revenue performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.
Want the full picture on analyst estimates for the company? Then our free report on Foxtons Group will help you uncover what's on the horizon.
Do Revenue Forecasts Match The Low P/S Ratio?
Foxtons Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.
Retrospectively, the last year delivered a decent 11% gain to the company's revenues. Pleasingly, revenue has also lifted 31% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 4.3% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 1.8% per annum, which is noticeably less attractive.
With this in consideration, we find it intriguing that Foxtons Group's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
What Does Foxtons Group's P/S Mean For Investors?
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
A look at Foxtons Group's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.
Before you take the next step, you should know about the 1 warning sign for Foxtons Group that we have uncovered.
If you're unsure about the strength of Foxtons Group'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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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.
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