Investors Holding Back On Redfin Corporation (NASDAQ:RDFN)

Redfin Corporation's (NASDAQ:RDFN) price-to-sales (or "P/S") ratio of 1x might make it look like a buy right now compared to the Real Estate industry in the United States, where around half of the companies have P/S ratios above 2.1x and even P/S above 10x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for Redfin

What Does Redfin's P/S Mean For Shareholders?

Redfin could be doing better as it's been growing revenue less than most other companies lately. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

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

In order to justify its P/S ratio, Redfin would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a decent 3.7% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 33% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 11% each year during the coming three years according to the analysts following the company. That's shaping up to be similar to the 13% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that Redfin's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Redfin's P/S?

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.

We've seen that Redfin currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

It is also worth noting that we have found 2 warning signs for Redfin (1 doesn't sit too well with us!) that you need to take into consideration.

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