Quartiers Properties AB (publ) (STO:QUART) Soars 34% But It's A Story Of Risk Vs Reward

Despite an already strong run, Quartiers Properties AB (publ) (STO:QUART) shares have been powering on, with a gain of 34% in the last thirty days. The last 30 days bring the annual gain to a very sharp 87%.

In spite of the firm bounce in price, Quartiers Properties' price-to-sales (or "P/S") ratio of 2.7x might still make it look like a buy right now compared to the Real Estate industry in Sweden, where around half of the companies have P/S ratios above 5.2x and even P/S above 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Quartiers Properties

What Does Quartiers Properties' Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Quartiers Properties has been doing very well. One possibility is that the P/S ratio is low because investors think this strong revenue growth might actually underperform the broader industry in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Quartiers Properties' earnings, revenue and cash flow.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Quartiers Properties' is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered an exceptional 33% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Comparing that recent medium-term revenue trajectory with the industry's one-year growth forecast of 4.0% shows it's noticeably more attractive.

With this in mind, we find it intriguing that Quartiers Properties' P/S isn't as high compared to that of its industry peers. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Despite Quartiers Properties' share price climbing recently, its P/S still lags most other companies. 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.

We're very surprised to see Quartiers Properties 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. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You need to take note of risks, for example - Quartiers Properties has 3 warning signs (and 2 which are a bit unpleasant) we think you should know about.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com