Getting In Cheap On PropertyGuru Group Limited (NYSE:PGRU) Might Be Difficult

PropertyGuru Group Limited's (NYSE:PGRU) price-to-sales (or "P/S") ratio of 5.6x may look like a poor investment opportunity when you consider close to half the companies in the Interactive Media and Services industry in the United States have P/S ratios below 2x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for PropertyGuru Group

What Does PropertyGuru Group's P/S Mean For Shareholders?

PropertyGuru Group's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 10% last year. The latest three year period has also seen an excellent 83% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 16% per annum over the next three years. That's shaping up to be materially higher than the 12% per annum growth forecast for the broader industry.

In light of this, it's understandable that PropertyGuru Group's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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.

Our look into PropertyGuru Group shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for PropertyGuru Group that you should be aware of.

If you're unsure about the strength of PropertyGuru Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.