Warby Parker Inc.'s (NYSE:WRBY) price-to-sales (or "P/S") ratio of 2.2x may not look like an appealing investment opportunity when you consider close to half the companies in the Specialty Retail industry in the United States have P/S ratios below 0.4x. 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.
NYSE:WRBY Price to Sales Ratio vs Industry April 17th 2024
How Has Warby Parker Performed Recently?
Recent times have been advantageous for Warby Parker as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Warby Parker.
Is There Enough Revenue Growth Forecasted For Warby Parker?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Warby Parker's to be considered reasonable.
Taking a look back first, we see that the company managed to grow revenues by a handy 12% last year. The latest three year period has also seen an excellent 70% 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.
Looking ahead now, revenue is anticipated to climb by 13% each year during the coming three years according to the analysts following the company. With the industry only predicted to deliver 5.6% per annum, the company is positioned for a stronger revenue result.
In light of this, it's understandable that Warby Parker's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
What We Can Learn From Warby Parker's P/S?
It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of Warby Parker's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
We don't want to rain on the parade too much, but we did also find 1 warning sign for Warby Parker that you need to be mindful of.
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.