Sedlmayr Grund und Immobilien AG (FRA:SPB) Looks Just Right With A 27% Price Jump

The Sedlmayr Grund und Immobilien AG (FRA:SPB) share price has done very well over the last month, posting an excellent gain of 27%. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, when almost half of the companies in Germany's Real Estate industry have price-to-sales ratios (or "P/S") below 3.3x, you may consider Sedlmayr Grund und Immobilien as a stock not worth researching with its 7.3x 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.

We've discovered 3 warning signs about Sedlmayr Grund und Immobilien. View them for free.

View our latest analysis for Sedlmayr Grund und Immobilien

What Does Sedlmayr Grund und Immobilien's P/S Mean For Shareholders?

The revenue growth achieved at Sedlmayr Grund und Immobilien over the last year would be more than acceptable for most companies. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for Sedlmayr Grund und Immobilien, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Sedlmayr Grund und Immobilien's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Sedlmayr Grund und Immobilien's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. Pleasingly, revenue has also lifted 30% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

In contrast to the company, the rest of the industry is expected to decline by 40% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

With this in mind, it's clear to us why Sedlmayr Grund und Immobilien's P/S exceeds that of its industry peers. Investors are willing to pay more for a stock they hope will buck the trend of the broader industry going backwards. However, its current revenue trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.

The Key Takeaway

Shares in Sedlmayr Grund und Immobilien have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As detailed previously, the strength of Sedlmayr Grund und Immobilien's recent revenue trends over the medium-term relative to a declining industry is part of the reason why it trades at a higher P/S than its industry counterparts. It could be said that investors feel this revenue growth will continue into the future, justifying a higher P/S ratio. Our only concern is whether its revenue trajectory can keep outperforming under these tough industry conditions. Otherwise, it's hard to see the share price falling strongly in the near future if its revenue performance persists.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Sedlmayr Grund und Immobilien (of which 2 make us uncomfortable!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.