Market Might Still Lack Some Conviction On Varia US Properties AG (VTX:VARN) Even After 27% Share Price Boost

Varia US Properties AG (VTX:VARN) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 39% over that time.

Even after such a large jump in price, given close to half the companies in Switzerland's Real Estate industry have price-to-sales ratios (or "P/S") above 10.5x, you may still consider Varia US Properties as a highly attractive investment with its 2.1x P/S ratio. 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 Varia US Properties

How Has Varia US Properties Performed Recently?

With revenue that's retreating more than the industry's average of late, Varia US Properties has been very sluggish. The P/S ratio is probably low because investors think this poor revenue performance isn't going to improve at all. You'd much rather the company improve its revenue performance if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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How Is Varia US Properties' Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Varia US Properties' to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.6%. The last three years don't look nice either as the company has shrunk revenue by 3.4% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 14% per year during the coming three years according to the only analyst following the company. With the industry only predicted to deliver 4.0% each year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Varia US Properties' P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Varia US Properties' P/S?

Shares in Varia US Properties have risen appreciably however, its P/S is still subdued. 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.

A look at Varia US Properties' revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. The reason for this depressed P/S could potentially be found in the risks the market is pricing in. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Varia US Properties (2 don't sit too well with us) you should be aware of.

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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.