NexLiving Communities Inc.'s (CVE:NXLV) 30% Jump Shows Its Popularity With Investors

The NexLiving Communities Inc. (CVE:NXLV) share price has done very well over the last month, posting an excellent gain of 30%. Looking back a bit further, it's encouraging to see the stock is up 33% in the last year.

Following the firm bounce in price, when almost half of the companies in Canada's Real Estate industry have price-to-sales ratios (or "P/S") below 3x, you may consider NexLiving Communities as a stock probably not worth researching with its 4.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

See our latest analysis for NexLiving Communities

How NexLiving Communities Has Been Performing

With revenue growth that's superior to most other companies of late, NexLiving Communities has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on NexLiving Communities.

How Is NexLiving Communities' Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like NexLiving Communities' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. The latest three year period has also seen an excellent 236% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 51% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.6%, which is noticeably less attractive.

With this information, we can see why NexLiving Communities is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The large bounce in NexLiving Communities' shares has lifted the company's P/S handsomely. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that NexLiving Communities 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It is also worth noting that we have found 3 warning signs for NexLiving Communities (2 can't be ignored!) that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.