To the annoyance of some shareholders, Dollar Tree, Inc. (NASDAQ:DLTR) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 30% share price drop.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Dollar Tree's P/S ratio of 0.5x, since the median price-to-sales (or "P/S") ratio for the Consumer Retailing industry in the United States is also close to 0.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

How Has Dollar Tree Performed Recently?

Dollar Tree's revenue growth of late has been pretty similar to most other companies. It seems that many are expecting the mediocre revenue performance to persist, which has held the P/S ratio back. Those who are bullish on Dollar Tree will be hoping that revenue performance can pick up, so that they can pick up the stock at a slightly lower valuation.

Is There Some Revenue Growth Forecasted For Dollar Tree?

The only time you'd be comfortable seeing a P/S like Dollar Tree's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.6% last year. The latest three year period has also seen a 20% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 2.8% each year during the coming three years according to the analysts following the company. With the industry predicted to deliver 4.8% growth per year, the company is positioned for a comparable revenue result.

With this in mind, it makes sense that Dollar Tree's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Bottom Line On Dollar Tree's P/S

Following Dollar Tree's share price tumble, its P/S is just clinging on to the industry median 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.

Our look at Dollar Tree's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Before you settle on your opinion, we've discovered 1 warning sign for Dollar Tree that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.