Nexity SA (EPA:NXI) Stock Rockets 28% But Many Are Still Ignoring The Company

Nexity SA (EPA:NXI) shareholders would be excited to see that the share price has had a great month, posting a 28% 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 11% over that time.

Even after such a large jump in price, Nexity's price-to-sales (or "P/S") ratio of 0.2x might still make it look like a strong buy right now compared to the wider Real Estate industry in France, where around half of the companies have P/S ratios above 2.2x and even P/S above 8x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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Check out our latest analysis for Nexity

What Does Nexity's Recent Performance Look Like?

Nexity could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as depressed as Nexity's is when the company's growth is on track to lag the industry decidedly.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 16%. This means it has also seen a slide in revenue over the longer-term as revenue is down 27% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 6.0% as estimated by the six analysts watching the company. Meanwhile, the industry is forecast to moderate by 5.4%, which suggests the company won't escape the wider industry forces.

With this information, it's perhaps strange but not a major surprise that Nexity is trading at a lower P/S in comparison. With revenue going in reverse, it's not guaranteed that the P/S has found a floor yet. Even just maintaining these prices could be difficult to achieve as the weak outlook is already weighing down the shares heavily.

The Final Word

Shares in Nexity have risen appreciably however, its P/S is still subdued. 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 Nexity currently trades on a lower than expected P/S since its revenue forecast is matching the struggling industry but its P/S is struggling to keep up. There could be some further unobserved threats to revenue stability preventing the P/S ratio from matching the outlook. Perhaps there is some hesitation about the company's ability to resist further pain to its business from the broader industry turmoil. It appears some are indeed anticipating revenue instability, because the company's current prospects should typically see a P/S closer to the industry average.

Plus, you should also learn about this 1 warning sign we've spotted with Nexity.

If these risks are making you reconsider your opinion on Nexity, 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.