Sportsman's Warehouse Holdings, Inc. (NASDAQ:SPWH) shares have continued their recent momentum with a 84% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 7.7% isn't as impressive.
Although its price has surged higher, you could still be forgiven for feeling indifferent about Sportsman's Warehouse Holdings' P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in the United States is also close to 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
See our latest analysis for Sportsman's Warehouse Holdings
How Has Sportsman's Warehouse Holdings Performed Recently?
Sportsman's Warehouse Holdings hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. 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 Sportsman's Warehouse Holdings.How Is Sportsman's Warehouse Holdings' Revenue Growth Trending?
There's an inherent assumption that a company should be matching the industry for P/S ratios like Sportsman's Warehouse Holdings' to be considered reasonable.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 4.9%. The last three years don't look nice either as the company has shrunk revenue by 19% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.
Turning to the outlook, the next year should generate growth of 1.4% as estimated by the five analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 5.4%, which is noticeably more attractive.
With this in mind, we find it intriguing that Sportsman's Warehouse Holdings' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
The Key Takeaway
Its shares have lifted substantially and now Sportsman's Warehouse Holdings' P/S is back within range of the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Given that Sportsman's Warehouse Holdings' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Sportsman's Warehouse Holdings that you should be aware of.
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.