PEXA Group Limited's (ASX:PXA) Share Price Matching Investor Opinion

When close to half the companies in the Real Estate industry in Australia have price-to-sales ratios (or "P/S") below 2.9x, you may consider PEXA Group Limited (ASX:PXA) as a stock to avoid entirely with its 7.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for PEXA Group

How Has PEXA Group Performed Recently?

With revenue growth that's superior to most other companies of late, PEXA Group has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on PEXA Group will help you uncover what's on the horizon.

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 21% gain to the company's top line. The latest three year period has also seen an excellent 54% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 14% each year over the next three years. With the industry only predicted to deliver 4.0% per annum, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why PEXA Group's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From PEXA Group's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that PEXA Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Real Estate industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for PEXA Group you should be aware of.

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.