Even With A 78% Surge, Cautious Investors Are Not Rewarding Fathom Holdings Inc.'s (NASDAQ:FTHM) Performance Completely

Fathom Holdings Inc. (NASDAQ:FTHM) shareholders would be excited to see that the share price has had a great month, posting a 78% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 23% in the last twelve months.

Although its price has surged higher, Fathom Holdings may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.1x, since almost half of all companies in the Real Estate industry in the United States have P/S ratios greater than 2.9x and even P/S higher than 10x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

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View our latest analysis for Fathom Holdings

What Does Fathom Holdings' P/S Mean For Shareholders?

Recent revenue growth for Fathom Holdings has been in line with the industry. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Fathom Holdings.

How Is Fathom Holdings' Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as depressed as Fathom Holdings' is when the company's growth is on track to lag the industry decidedly.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 5.9% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 14% as estimated by the one analyst watching the company. Meanwhile, the rest of the industry is forecast to expand by 14%, which is not materially different.

In light of this, it's peculiar that Fathom Holdings' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

What We Can Learn From Fathom Holdings' P/S?

Fathom Holdings' recent share price jump still sees fails to bring its P/S alongside the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Fathom Holdings' revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

It is also worth noting that we have found 6 warning signs for Fathom Holdings (3 don't sit too well with us!) that you need to take into consideration.

If you're unsure about the strength of Fathom Holdings' 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.