Pinning Down Savers Value Village, Inc.'s (NYSE:SVV) P/S Is Difficult Right Now
With a median price-to-sales (or "P/S") ratio of close to 1.3x in the Multiline Retail industry in the United States, you could be forgiven for feeling indifferent about Savers Value Village, Inc.'s (NYSE:SVV) P/S ratio of 0.9x. 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 Savers Value Village
How Has Savers Value Village Performed Recently?
Savers Value Village could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.
Keen to find out how analysts think Savers Value Village's future stacks up against the industry? In that case, our free report is a great place to start.What Are Revenue Growth Metrics Telling Us About The P/S?
Savers Value Village's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 6.4%. The solid recent performance means it was also able to grow revenue by 14% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.
Looking ahead now, revenue is anticipated to climb by 8.4% during the coming year according to the ten analysts following the company. With the industry predicted to deliver 13% growth, the company is positioned for a weaker revenue result.
With this in mind, we find it intriguing that Savers Value Village's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.
What We Can Learn From Savers Value Village's P/S?
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.
Given that Savers Value Village's 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. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
Before you take the next step, you should know about the 1 warning sign for Savers Value Village that we have uncovered.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.