PEXA Group Limited's (ASX:PXA) P/S Is On The Mark

PEXA Group Limited's (ASX:PXA) price-to-sales (or "P/S") ratio of 5.7x might make it look like a strong sell right now compared to the Real Estate industry in Australia, where around half of the companies have P/S ratios below 2.5x and even P/S below 0.5x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for PEXA Group

What Does PEXA Group's P/S Mean For Shareholders?

Recent times haven't been great for PEXA Group as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think PEXA Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is PEXA Group's Revenue Growth Trending?

In order to justify its P/S ratio, PEXA Group would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 43% in total over the last three years. 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 eleven analysts covering the company suggest revenue should grow by 14% per annum over the next three years. That's shaping up to be materially higher than the 6.5% per annum growth forecast for the broader industry.

In light of this, it's understandable that PEXA Group's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On PEXA Group's P/S

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.

Our look into PEXA Group shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for PEXA Group with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on PEXA Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.