Grove Collaborative Holdings, Inc.'s (NYSE:GROV) Share Price Could Signal Some Risk
It's not a stretch to say that Grove Collaborative Holdings, Inc.'s (NYSE:GROV) price-to-sales (or "P/S") ratio of 0.3x seems quite "middle-of-the-road" for Specialty Retail companies in the United States, seeing as it matches the P/S ratio of the wider industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.
View our latest analysis for Grove Collaborative Holdings
What Does Grove Collaborative Holdings' P/S Mean For Shareholders?
While the industry has experienced revenue growth lately, Grove Collaborative Holdings' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Grove Collaborative Holdings.
What Are Revenue Growth Metrics Telling Us About The P/S?
Grove Collaborative Holdings' 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.
Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 18%. As a result, revenue from three years ago have also fallen 25% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Looking ahead now, revenue is anticipated to slump, contracting by 6.7% during the coming year according to the two analysts following the company. Meanwhile, the broader industry is forecast to expand by 6.3%, which paints a poor picture.
With this in consideration, we think it doesn't make sense that Grove Collaborative Holdings' P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.
The Key Takeaway
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
While Grove Collaborative Holdings' P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.
There are also other vital risk factors to consider and we've discovered 4 warning signs for Grove Collaborative Holdings (1 is a bit unpleasant!) that you should be aware of before investing here.
If you're unsure about the strength of Grove Collaborative Holdings' 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.
