LightInTheBox Holding Co., Ltd. (NYSE:LITB) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month.    Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 50% share price drop.  

Following the heavy fall in price, it would be understandable if you think LightInTheBox Holding is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.1x, considering almost half the companies in the United States' Multiline Retail industry have P/S ratios above 1x.   Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.  

NYSE:LITB Price to Sales Ratio vs Industry March 26th 2024

What Does LightInTheBox Holding's P/S Mean For Shareholders?

The revenue growth achieved at LightInTheBox Holding over the last year would be more than acceptable for most companies.   One possibility is that the P/S is low because investors think this respectable revenue growth might actually underperform the broader industry in the near future.  If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.    

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on LightInTheBox Holding will help you shine a light on its historical performance.  

Do Revenue Forecasts Match The Low P/S Ratio?  

LightInTheBox Holding's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.  

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line.   Pleasingly, revenue has also lifted 58% in aggregate from three years ago, thanks to the last 12 months of growth.  So we can start by confirming that the company has done a great job of growing revenue over that time.  

This is in contrast to the rest of the industry, which is expected to grow by 14% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that LightInTheBox Holding is trading at a P/S lower than the industry.  Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.  

The Final Word

The southerly movements of LightInTheBox Holding's shares means its P/S is now sitting at a pretty low level.      While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our examination of LightInTheBox Holding revealed its three-year revenue trends aren't boosting its P/S anywhere near as much as we would have predicted, given they look better than current industry expectations.  When we see robust revenue growth that outpaces the industry, we presume that there are notable underlying risks to the company's future performance, which is exerting downward pressure on the P/S ratio.  While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.    

We don't want to rain on the parade too much, but we did also find 3 warning signs for LightInTheBox Holding (1 is significant!) that you need to be mindful of.  

If you're unsure about the strength of LightInTheBox Holding's 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.