Even With A 29% Surge, Cautious Investors Are Not Rewarding CRE, Inc.'s (TSE:3458) Performance Completely

CRE, Inc. (TSE:3458) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 27%.

Although its price has surged higher, there still wouldn't be many who think CRE's price-to-sales (or "P/S") ratio of 1.3x is worth a mention when the median P/S in Japan's Real Estate industry is similar at about 0.9x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Check out our latest analysis for CRE

What Does CRE's Recent Performance Look Like?

CRE could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The P/S Ratio?

CRE's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 39% 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.

Looking ahead now, revenue is anticipated to climb by 81% during the coming year according to the only analyst following the company. With the industry only predicted to deliver 7.0%, the company is positioned for a stronger revenue result.

In light of this, it's curious that CRE's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From CRE's P/S?

CRE appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that CRE currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for CRE you should be aware of, and 1 of them shouldn't be ignored.

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

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