When you see that almost half of the companies in the Real Estate industry in the United States have price-to-sales ratios (or "P/S") below 2x, Howard Hughes Holdings Inc. (NYSE:HHH) looks to be giving off some sell signals with its 3.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
View our latest analysis for Howard Hughes Holdings
NYSE:HHH Price to Sales Ratio vs Industry January 8th 2024
What Does Howard Hughes Holdings' P/S Mean For Shareholders?
While the industry has experienced revenue growth lately, Howard Hughes Holdings' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Howard Hughes Holdings will help you uncover what's on the horizon.
What Are Revenue Growth Metrics Telling Us About The High P/S?
The only time you'd be truly comfortable seeing a P/S as high as Howard Hughes Holdings' is when the company's growth is on track to outshine the industry.
Retrospectively, the last year delivered a frustrating 39% decrease to the company's top line. Even so, admirably revenue has lifted 52% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.
Looking ahead now, revenue is anticipated to climb by 29% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 10% growth forecast for the broader industry.
With this information, we can see why Howard Hughes Holdings is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Final Word
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 look into Howard Hughes Holdings shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Howard Hughes Holdings, and understanding should be part of your investment process.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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