City Chic Collective Limited's (ASX:CCX) 25% Share Price Plunge Could Signal Some Risk

To the annoyance of some shareholders, City Chic Collective Limited (ASX:CCX) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 19% in that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about City Chic Collective's P/S ratio of 0.3x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in Australia is also close to 0.7x. 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

How City Chic Collective Has Been Performing

While the industry has experienced revenue growth lately, City Chic Collective's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. 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 City Chic Collective.

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 City Chic Collective's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 23%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 7.1% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 4.6% as estimated by the eight analysts watching the company. Meanwhile, the broader industry is forecast to expand by 9.0%, which paints a poor picture.

With this information, we find it concerning that City Chic Collective is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

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

With its share price dropping off a cliff, the P/S for City Chic Collective looks to be in line with the rest of the Specialty Retail industry. 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.

It appears that City Chic Collective currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Before you take the next step, you should know about the 1 warning sign for City Chic Collective that we have uncovered.

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.