Revenues Working Against First Property Group plc's (LON:FPO) Share Price

First Property Group plc's (LON:FPO) price-to-sales (or "P/S") ratio of 2x might make it look like a strong buy right now compared to the Real Estate industry in the United Kingdom, where around half of the companies have P/S ratios above 4.1x 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.

Check out our latest analysis for First Property Group

How First Property Group Has Been Performing

First Property Group has been doing a good job lately as it's been growing revenue at a solid pace. Perhaps the market is expecting this acceptable revenue performance to take a dive, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

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

Do Revenue Forecasts Match The Low P/S Ratio?

First Property Group's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 8.3%. However, this wasn't enough as the latest three year period has seen an unpleasant 35% overall drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Comparing that to the industry, which is predicted to shrink 6.8% in the next 12 months, the company's downward momentum is still inferior based on recent medium-term annualised revenue results.

With this in consideration, it's no surprise that First Property Group's P/S falls short of its industry peers. Nonetheless, with revenue going quickly in reverse, it's not guaranteed that the P/S has found a floor yet. Even just maintaining these prices will be difficult to achieve as recent revenue trends are already weighing down the shares heavily.

The Bottom Line On First Property Group's P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It's clear that First Property Group trades at a low P/S relative to the wider industry on the weakness of its recent three-year revenue being even worse than the forecasts for a struggling industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. However, we're still cautious about the company's ability to prevent an acceleration of its recent medium-term course and resist even greater pain to its business from the broader industry turmoil. In the meantime, unless the company's relative performance improves, the share price will hit a barrier around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for First Property Group (1 is potentially serious!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on First Property Group, 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.