The Market Doesn't Like What It Sees From RE/MAX Holdings, Inc.'s (NYSE:RMAX) Revenues Yet

RE/MAX Holdings, Inc.'s (NYSE:RMAX) price-to-sales (or "P/S") ratio of 0.5x 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 1.9x 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.

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View our latest analysis for RE/MAX Holdings

What Does RE/MAX Holdings' Recent Performance Look Like?

RE/MAX Holdings 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. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 5.5%. This means it has also seen a slide in revenue over the longer-term as revenue is down 6.7% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 2.7% as estimated by the six analysts watching the company. With the industry predicted to deliver 16% growth, that's a disappointing outcome.

With this in consideration, we find it intriguing that RE/MAX Holdings' P/S is closely matching its industry peers. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that RE/MAX Holdings' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, RE/MAX Holdings' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

Before you settle on your opinion, we've discovered 3 warning signs for RE/MAX Holdings (2 shouldn't be ignored!) that you should be aware of.

If you're unsure about the strength of RE/MAX 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.