NP3 Fastigheter AB (publ)'s (STO:NP3) Popularity With Investors Is Under Threat From Overpricing

When you see that almost half of the companies in the Real Estate industry in Sweden have price-to-sales ratios (or "P/S") below 5.3x, NP3 Fastigheter AB (publ) (STO:NP3) looks to be giving off some sell signals with its 7.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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View our latest analysis for NP3 Fastigheter

How NP3 Fastigheter Has Been Performing

Recent times have been advantageous for NP3 Fastigheter as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think NP3 Fastigheter's future stacks up against the industry? In that case, our free report is a great place to start.

How Is NP3 Fastigheter's Revenue Growth Trending?

There's an inherent assumption that a company should outperform the industry for P/S ratios like NP3 Fastigheter's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 11%. This was backed up an excellent period prior to see revenue up by 61% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 6.4% each year over the next three years. That's shaping up to be similar to the 5.8% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that NP3 Fastigheter's P/S is higher than its industry peers. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

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.

Analysts are forecasting NP3 Fastigheter's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 3 warning signs for NP3 Fastigheter (1 is potentially serious!) that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.