A Piece Of The Puzzle Missing From Real Fastigheter AB (publ)'s (NGM:REAL) 43% Share Price Climb

Real Fastigheter AB (publ) (NGM:REAL) shareholders would be excited to see that the share price has had a great month, posting a 43% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Although its price has surged higher, Real Fastigheter may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.8x, considering almost half of all companies in the Real Estate industry in Sweden have P/S ratios greater than 5.5x and even P/S higher than 9x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for Real Fastigheter

How Real Fastigheter Has Been Performing

The revenue growth achieved at Real Fastigheter over the last year would be more than acceptable for most companies. It might be that many expect the respectable revenue performance to degrade substantially, which has repressed the P/S. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Real Fastigheter will help you shine a light on its historical performance.

How Is Real Fastigheter's Revenue Growth Trending?

In order to justify its P/S ratio, Real Fastigheter would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.8% last year. The latest three year period has also seen an excellent 122% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 6.9%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it odd that Real Fastigheter is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What Does Real Fastigheter's P/S Mean For Investors?

Even after such a strong price move, Real Fastigheter's P/S still trails the rest of 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're very surprised to see Real Fastigheter currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 6 warning signs for Real Fastigheter (3 are a bit unpleasant!) that you need to be mindful of.

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