Noodles & Company's (NASDAQ:NDLS) Prospects Need A Boost To Lift Shares
With a price-to-sales (or "P/S") ratio of 0.5x Noodles & Company (NASDAQ:NDLS) may be sending bullish signals at the moment, given that almost half of all the Hospitality companies in the United States have P/S ratios greater than 1.7x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Noodles
How Noodles Has Been Performing
Noodles could be doing better as it's been growing revenue less than most other companies lately. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.
Want the full picture on analyst estimates for the company? Then our free report on Noodles will help you uncover what's on the horizon.
Is There Any Revenue Growth Forecasted For Noodles?
The only time you'd be truly comfortable seeing a P/S as low as Noodles' is when the company's growth is on track to lag the industry.
If we review the last year of revenue growth, the company posted a worthy increase of 7.2%. Revenue has also lifted 10% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 7.6% over the next year. Meanwhile, the rest of the industry is forecast to expand by 31%, which is noticeably more attractive.
With this in consideration, its clear as to why Noodles' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Bottom Line On Noodles' P/S
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.
As expected, our analysis of Noodles' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Noodles that you should be aware of.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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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