Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) shareholders would be excited to see that the share price has had a great month, posting a 126% gain and recovering from prior weakness. But the last month did very little to improve the 57% share price decline over the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Petco Health and Wellness Company's price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in the United States, where the median P/S ratio is around 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does Petco Health and Wellness Company's P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Petco Health and Wellness Company has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Petco Health and Wellness Company will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Petco Health and Wellness Company's to be considered reasonable.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. Still, the latest three year period was better as it's delivered a decent 19% overall rise in revenue. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 1.2% per year over the next three years. With the industry predicted to deliver 5.7% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's curious that Petco Health and Wellness Company's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

Petco Health and Wellness Company's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Given that Petco Health and Wellness Company's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Having said that, be aware Petco Health and Wellness Company is showing 1 warning sign in our investment analysis, you should know about.

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.