The Market Lifts Winton Land Limited (NZSE:WIN) Shares 25% But It Can Do More

Simply Wall St · 10/15 18:05

Winton Land Limited (NZSE:WIN) shares have had a really impressive month, gaining 25% after a shaky period beforehand. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Even after such a large jump in price, there still wouldn't be many who think Winton Land's price-to-sales (or "P/S") ratio of 3.8x is worth a mention when the median P/S in New Zealand's Real Estate industry is similar at about 3.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Winton Land

ps-multiple-vs-industry
NZSE:WIN Price to Sales Ratio vs Industry October 15th 2024

How Winton Land Has Been Performing

Winton Land could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Winton Land.

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

In order to justify its P/S ratio, Winton Land would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 21% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 1.9% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 28% per year during the coming three years according to the one analyst following the company. That's shaping up to be materially higher than the 5.7% per year growth forecast for the broader industry.

With this in consideration, we find it intriguing that Winton Land's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Winton Land's P/S?

Its shares have lifted substantially and now Winton Land's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Winton Land currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Winton Land that you need to be mindful of.

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.