GEN Restaurant Group, Inc. (NASDAQ:GENK) shares have had a horrible month, losing 26% after a relatively good period beforehand. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

After such a large drop in price, given about half the companies operating in the United States' Hospitality industry have price-to-sales ratios (or "P/S") above 1.3x, you may consider GEN Restaurant Group as an attractive investment with its 0.1x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How GEN Restaurant Group Has Been Performing

With revenue growth that's inferior to most other companies of late, GEN Restaurant Group has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

How Is GEN Restaurant Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as GEN Restaurant Group's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The latest three year period has also seen an excellent 189% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 12% as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 13%, which is not materially different.

In light of this, it's peculiar that GEN Restaurant Group's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On GEN Restaurant Group's P/S

The southerly movements of GEN Restaurant Group's shares means its P/S is now sitting at a pretty low level. 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.

We've seen that GEN Restaurant Group currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

Before you take the next step, you should know about the 2 warning signs for GEN Restaurant Group that we have uncovered.

If these risks are making you reconsider your opinion on GEN Restaurant Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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