Some Confidence Is Lacking In boohoo group plc (LON:DEBS) As Shares Slide 25%

To the annoyance of some shareholders, boohoo group plc (LON:DEBS) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 42% share price drop.

Although its price has dipped substantially, it's still not a stretch to say that boohoo group's price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in the United Kingdom, where the median P/S ratio is around 0.3x. 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.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

View our latest analysis for boohoo group

How boohoo group Has Been Performing

Recent times haven't been great for boohoo group as its revenue has been falling quicker than most other companies. Perhaps the market is expecting future revenue performance to begin matching the rest of the industry, which has kept the P/S from declining. You'd much rather the company improve its revenue if you still believe in the business. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

Keen to find out how analysts think boohoo group'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?

boohoo group's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

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 16%. The last three years don't look nice either as the company has shrunk revenue by 29% 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 bring diminished returns, with revenue decreasing 2.5% per year as estimated by the eleven analysts watching the company. Meanwhile, the broader industry is forecast to expand by 4.3% per year, which paints a poor picture.

With this in consideration, we think it doesn't make sense that boohoo group's P/S is closely matching its industry peers. 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.

The Bottom Line On boohoo group's P/S

With its share price dropping off a cliff, the P/S for boohoo group looks to be in line with the rest of the Specialty Retail industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our check of boohoo group's analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Plus, you should also learn about this 1 warning sign we've spotted with boohoo group.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.