Investors Don't See Light At End Of THG Plc's (LON:THG) Tunnel

When you see that almost half of the companies in the Multiline Retail industry in the United Kingdom have price-to-sales ratios (or "P/S") above 0.9x, THG Plc (LON:THG) looks to be giving off some buy signals with its 0.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

View our latest analysis for THG

What Does THG's Recent Performance Look Like?

While the industry has experienced revenue growth lately, THG's revenue has gone into reverse gear, which is not great. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

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

How Is THG's Revenue Growth Trending?

In order to justify its P/S ratio, THG would need to produce sluggish growth that's trailing 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 8.7%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 27% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 5.5% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 11% per annum, which is noticeably more attractive.

In light of this, it's understandable that THG's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On THG's P/S

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.

As expected, our analysis of THG's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for THG that you should be aware of.

If these risks are making you reconsider your opinion on THG, 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.