Kogan.com Ltd's (ASX:KGN) 36% Cheaper Price Remains In Tune With Revenues

Kogan.com Ltd (ASX:KGN) shares have had a horrible month, losing 36% after a relatively good period beforehand. Longer-term, the stock has been solid despite a difficult 30 days, gaining 18% in the last year.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Kogan.com's P/S ratio of 1.1x, since the median price-to-sales (or "P/S") ratio for the Multiline 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 Kogan.com

What Does Kogan.com's Recent Performance Look Like?

Kogan.com could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

Want the full picture on analyst estimates for the company? Then our free report on Kogan.com will help you uncover what's on the horizon.

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

There's an inherent assumption that a company should be matching the industry for P/S ratios like Kogan.com's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 20% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 33% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 6.4% each year as estimated by the eight analysts watching the company. That's shaping up to be similar to the 5.0% per year growth forecast for the broader industry.

With this information, we can see why Kogan.com is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What Does Kogan.com's P/S Mean For Investors?

Kogan.com's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

A Kogan.com's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Multiline Retail industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Kogan.com that you need to be mindful of.

If these risks are making you reconsider your opinion on Kogan.com, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.