Yahoo Finance Investors Holding Back On The RealReal, Inc. (NASDAQ:REAL)
With a median price-to-sales (or "P/S") ratio of close to 0.4x in the Specialty Retail industry in the United States, you could be forgiven for feeling indifferent about The RealReal, Inc.'s (NASDAQ:REAL) P/S ratio of 0.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
Check out our latest analysis for RealReal
What Does RealReal's Recent Performance Look Like?
RealReal certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.
Keen to find out how analysts think RealReal's future stacks up against the industry? In that case, our free report is a great place to start.
How Is RealReal's Revenue Growth Trending?
In order to justify its P/S ratio, RealReal would need to produce growth that's similar to the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 29%. The latest three year period has also seen an excellent 91% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 12% per annum as estimated by the analysts watching the company. With the industry only predicted to deliver 6.9% per annum, the company is positioned for a stronger revenue result.
With this in consideration, we find it intriguing that RealReal'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 Does RealReal's P/S Mean For Investors?
We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
Despite enticing revenue growth figures that outpace the industry, RealReal's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.
Don't forget that there may be other risks. For instance, we've identified 4 warning signs for RealReal (1 is significant) 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.
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