A Piece Of The Puzzle Missing From The Agency Group Australia Limited's (ASX:AU1) 28% Share Price Climb

The Agency Group Australia Limited (ASX:AU1) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Notwithstanding the latest gain, the annual share price return of 4.5% isn't as impressive.

In spite of the firm bounce in price, Agency Group Australia may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Real Estate industry in Australia have P/S ratios greater than 2.6x and even P/S higher than 6x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Agency Group Australia

What Does Agency Group Australia's Recent Performance Look Like?

The revenue growth achieved at Agency Group Australia over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the 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.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Agency Group Australia will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For Agency Group Australia?

Agency Group Australia's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Pleasingly, revenue has also lifted 43% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 4.4% shows it's a great look while it lasts.

With this information, we find it very odd that Agency Group Australia is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

The Key Takeaway

Even after such a strong price move, Agency Group Australia's P/S still trails the rest of the industry. 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 Agency Group Australia revealed that despite growing revenue over the medium-term in a shrinking industry, the P/S doesn't reflect this as it's lower than the industry average. There could be some major unobserved threats to revenue preventing the P/S ratio from matching this positive performance. Amidst challenging industry conditions, perhaps a key concern is whether the company can sustain its superior revenue growth trajectory. At least the risk of a price drop looks to be subdued, but investors think future revenue could see a lot of volatility.

You need to take note of risks, for example - Agency Group Australia has 2 warning signs (and 1 which is significant) we think you should know about.

If you're unsure about the strength of Agency Group Australia'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.