Despite an already strong run, Fathom Holdings Inc. (NASDAQ:FTHM) shares have performed well, gaining 30% over the past 30 days, but the past month has done little to improve the 62% decline recorded over the past year.
Even after such a big jump in price, Fathom Holdings’ price-to-sales (or “P/S”) ratio of 0.2 may still be sending very bullish signals right now, as nearly half of all companies in the real estate industry in the United States have a P/S ratio of over 2.2x, and even P/S ratios of over 8x are not uncommon. However, it is not wise to simply take the P/S at face value, as there may be an explanation for why it is so low.
Check out our latest analysis for Fathom Holdings
What is Fathom Holdings’ recent performance?
Fathom Holdings has not performed well recently, as its revenue decline compares poorly to other companies that have, on average, seen some revenue growth. It seems that many are assuming the weak revenue performance will continue, which has depressed the P/S ratio. If that is the case, existing shareholders are unlikely to be enthusiastic about the future direction of the share price.
Would you like to know how analysts assess the future of Fathom Holdings compared to the industry? In this case, our free Report is a good starting point.
Is Fathom Holdings forecast to grow revenue?
To justify its price-to-sales ratio, Fathom Holdings would have to demonstrate weak growth that significantly lags behind the industry.
First, if we look back, the company’s revenue growth last year wasn’t exactly exciting, as it posted a disappointing 12% decline. Despite this, overall revenue is up an admirable 35% compared to three years ago, regardless of the last 12 months. So, first, we can say that the company has generally done a very good job of growing revenue during this time, even if there have been some hiccups along the way.
As for the outlook, the four analysts who cover the company estimate that next year will bring growth of 14%. The rest of the industry, on the other hand, is forecast to grow by 16%, which is much more attractive.
With this in mind, it is understandable that Fathom Holdings’ P/S is below that of most other companies. It seems that most investors expect limited future growth and are only willing to pay a lower amount for the stock.
What can we learn from Fathom Holdings’ P/S?
Fathom Holdings’ recent jump in share price still does not cause the price-to-sales ratio to fall to the industry average level. It is argued that the price-to-sales ratio is a poorer indicator of value in certain industries, but can be a meaningful indicator of business sentiment.
As expected, our analysis of analyst forecasts for Fathom Holdings confirms that the company’s disappointing revenue outlook is a major factor behind the low P/S ratio. At this point, investors believe that the potential for revenue growth is not large enough to justify a higher P/S ratio. Under these circumstances, it is difficult to imagine the share price rising much in the near future.
You always have to keep an eye on risks, for example: Fathom Holdings has 5 warning signs In our opinion, you should be aware of this.
It is important, Make sure you are looking for a great company and not just the first idea that comes to mind. So if increasing profitability matches your idea of a great company, take a look at this free List of interesting companies with strong recent earnings growth (and low P/E ratios).
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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.
