Watkin Jones Plc (LON:WJG) Might Not Be As Mispriced As It Looks After Plunging 26%

Watkin Jones Plc (LON:WJG) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 36% share price drop.

Since its price has dipped substantially, Watkin Jones may be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.2x, since almost half of all companies in the Real Estate industry in the United Kingdom have P/S ratios greater than 3.5x and even P/S higher than 7x are not unusual. 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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View our latest analysis for Watkin Jones

What Does Watkin Jones' Recent Performance Look Like?

Watkin Jones could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Watkin Jones will help you uncover what's on the horizon.

How Is Watkin Jones' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Watkin Jones' 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 27%. As a result, revenue from three years ago have also fallen 29% overall. 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 three years should generate growth of 8.8% per annum as estimated by the four analysts watching the company. With the industry predicted to deliver 9.0% growth per annum, the company is positioned for a comparable revenue result.

In light of this, it's peculiar that Watkin Jones' P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

Watkin Jones' P/S looks about as weak as its stock price lately. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It looks to us like the P/S figures for Watkin Jones remain low despite growth that is expected to be in line with other companies in the industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Watkin Jones you should be aware of.

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