Investors Holding Back On CaliberCos Inc. (NASDAQ:CWD)
With a price-to-sales (or "P/S") ratio of 0.3x CaliberCos Inc. (NASDAQ:CWD) may be sending very bullish signals at the moment, given that almost half of all the Capital Markets companies in the United States have P/S ratios greater than 2.6x and even P/S higher than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
See our latest analysis for CaliberCos
What Does CaliberCos' P/S Mean For Shareholders?
Revenue has risen at a steady rate over the last year for CaliberCos, which is generally not a bad outcome. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on CaliberCos' earnings, revenue and cash flow.
Do Revenue Forecasts Match The Low P/S Ratio?
There's an inherent assumption that a company should far underperform the industry for P/S ratios like CaliberCos' to be considered reasonable.
If we review the last year of revenue growth, the company posted a worthy increase of 7.3%. The latest three year period has also seen an excellent 80% 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.
Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 8.1% shows it's noticeably more attractive.
With this information, we find it odd that CaliberCos is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.
The Key Takeaway
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.
Our examination of CaliberCos revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.
Having said that, be aware CaliberCos is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.
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.
