City Chic Collective Limited (ASX:CCX) Stocks Pounded By 31% But Not Lagging Industry On Growth Or Pricing

To the annoyance of some shareholders, City Chic Collective Limited (ASX:CCX) shares are down a considerable 31% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 76% loss during that time.

In spite of the heavy fall in price, there still wouldn't be many who think City Chic Collective's price-to-sales (or "P/S") ratio of 0.3x is worth a mention when the median P/S in Australia's Specialty Retail industry is similar at about 0.8x. 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.

Check out our latest analysis for City Chic Collective

What Does City Chic Collective's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, City Chic Collective's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Keen to find out how analysts think City Chic Collective's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The P/S?

In order to justify its P/S ratio, City Chic Collective would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 29% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 51% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 8.1% per annum as estimated by the three analysts watching the company. With the industry predicted to deliver 7.2% growth per annum, the company is positioned for a comparable revenue result.

With this information, we can see why City Chic Collective is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What We Can Learn From City Chic Collective's P/S?

City Chic Collective's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

We've seen that City Chic Collective maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Plus, you should also learn about these 2 warning signs we've spotted with City Chic Collective (including 1 which can't be ignored).

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).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.