Alset Inc. (NASDAQ:AEI) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance.    Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 48% share price drop.  

After such a large drop in price, Alset may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.3x, since almost half of all companies in the Real Estate industry in the United States have P/S ratios greater than 1.8x and even P/S higher than 8x are not unusual.   However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.  

NasdaqCM:AEI Price to Sales Ratio vs Industry March 19th 2024

What Does Alset's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Alset has been doing very well.   It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio.  Those who are bullish on Alset will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.    

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Alset will help you shine a light on its historical performance.  

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Alset's to be considered reasonable.  

If we review the last year of revenue growth, the company posted a terrific increase of 240%.   The latest three year period has also seen an excellent 158% overall rise in revenue, aided by its short-term performance.  Therefore, it's fair to say the revenue growth recently has been superb for the company.  

This is in contrast to the rest of the industry, which is expected to grow by 12% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this in mind, we find it intriguing that Alset's P/S isn't as high compared to that of its industry peers.  It looks like most investors are not convinced the company can maintain its recent growth rates.  

The Key Takeaway

Alset's recently weak share price has pulled its P/S back below other Real Estate companies.      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 examination of Alset revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations.  When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio.  At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.    

Having said that, be aware Alset is showing 3 warning signs in our investment analysis, and 2 of those are a bit unpleasant.  

If you're unsure about the strength of Alset's 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.