After Leaping 27% Kits Eyecare Ltd. (TSE:KITS) Shares Are Not Flying Under The Radar
Kits Eyecare Ltd. (TSE:KITS) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last month tops off a massive increase of 103% in the last year.
Following the firm bounce in price, given close to half the companies operating in Canada's Specialty Retail industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Kits Eyecare as a stock to potentially avoid with its 2.9x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
Check out our latest analysis for Kits Eyecare
How Kits Eyecare Has Been Performing
Recent times have been advantageous for Kits Eyecare as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on analyst estimates for the company? Then our free report on Kits Eyecare will help you uncover what's on the horizon.What Are Revenue Growth Metrics Telling Us About The High P/S?
The only time you'd be truly comfortable seeing a P/S as high as Kits Eyecare's is when the company's growth is on track to outshine the industry.
Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. The latest three year period has also seen an excellent 126% 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.
Looking ahead now, revenue is anticipated to climb by 21% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 17%, which is noticeably less attractive.
With this information, we can see why Kits Eyecare is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What Does Kits Eyecare's P/S Mean For Investors?
The large bounce in Kits Eyecare's shares has lifted the company's P/S handsomely. 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.
We've established that Kits Eyecare maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Specialty Retail industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.
The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Kits Eyecare with six simple checks will allow you to discover any risks that could be an issue.
If you're unsure about the strength of Kits Eyecare'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.