There wouldn't be many who think RenaissanceRe Holdings Ltd.'s (NYSE:RNR) price-to-sales (or "P/S") ratio of 1.3x is worth a mention when the median P/S for the Insurance industry in the United States is similar at about 1.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
NYSE:RNR Price to Sales Ratio vs Industry April 2nd 2024
What Does RenaissanceRe Holdings' P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, RenaissanceRe Holdings has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.
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Do Revenue Forecasts Match The P/S Ratio?
There's an inherent assumption that a company should be matching the industry for P/S ratios like RenaissanceRe Holdings' to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 79%. The strong recent performance means it was also able to grow revenue by 78% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to climb by 11% per annum during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 6.9% per year, which is noticeably less attractive.
With this information, we find it interesting that RenaissanceRe Holdings is trading at a fairly similar P/S compared to the industry. It may be that most investors aren't convinced the company can achieve future growth expectations.
What Does RenaissanceRe Holdings' P/S Mean For Investors?
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Despite enticing revenue growth figures that outpace the industry, RenaissanceRe Holdings' P/S isn't quite what we'd expect. 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.
Plus, you should also learn about these 3 warning signs we've spotted with RenaissanceRe Holdings (including 1 which doesn't sit too well with us).
If these risks are making you reconsider your opinion on RenaissanceRe Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.
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