It's not a stretch to say that RenaissanceRe Holdings Ltd.'s (NYSE:RNR) price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" for companies in the Insurance industry in the United States, where the median P/S ratio is around 1.1x. 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.

What Does RenaissanceRe Holdings' Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, RenaissanceRe Holdings has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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Do Revenue Forecasts Match The P/S Ratio?

The only time you'd be comfortable seeing a P/S like RenaissanceRe Holdings' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 49% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 87% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 15% over the next year. With the industry only predicted to deliver 4.7%, the company is positioned for a stronger revenue result.

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.

The Final Word

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Looking at RenaissanceRe Holdings' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

There are also other vital risk factors to consider and we've discovered 2 warning signs for RenaissanceRe Holdings (1 is a bit unpleasant!) that you should be aware of before investing here.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com