Smith Douglas Homes Corp.'s (NYSE:SDHC) P/S Still Appears To Be Reasonable

With a median price-to-sales (or "P/S") ratio of close to 0.5x in the Consumer Durables industry in the United States, you could be forgiven for feeling indifferent about Smith Douglas Homes Corp.'s (NYSE:SDHC) P/S ratio of 0.2x. 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.

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Check out our latest analysis for Smith Douglas Homes

How Smith Douglas Homes Has Been Performing

Smith Douglas Homes certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

How Is Smith Douglas Homes' Revenue Growth Trending?

Smith Douglas Homes' 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.

If we review the last year of revenue growth, the company posted a terrific increase of 28%. The latest three year period has also seen an excellent 88% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 6.6% per annum over the next three years. That's shaping up to be similar to the 6.5% per year growth forecast for the broader industry.

In light of this, it's understandable that Smith Douglas Homes' P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Smith Douglas Homes' P/S

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

A Smith Douglas Homes' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Consumer Durables industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Smith Douglas Homes (1 is concerning) you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.