Why Investors Shouldn't Be Surprised By Anywhere Real Estate Inc.'s (NYSE:HOUS) Low P/S

With a price-to-sales (or "P/S") ratio of 0.1x Anywhere Real Estate Inc. (NYSE:HOUS) may be sending very bullish signals at the moment, given that almost half of all the Real Estate companies in the United States have P/S ratios greater than 2.3x and even P/S higher than 9x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Anywhere Real Estate

How Has Anywhere Real Estate Performed Recently?

Anywhere Real Estate hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Anywhere Real Estate?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Anywhere Real Estate's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 5.1%. As a result, revenue from three years ago have also fallen 26% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 7.3% as estimated by the three analysts watching the company. That's shaping up to be materially lower than the 16% growth forecast for the broader industry.

With this in consideration, its clear as to why Anywhere Real Estate's P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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.

We've established that Anywhere Real Estate maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

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

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.