Some Fox Factory Holding Corp. (NASDAQ:FOXF) Shareholders Look For Exit As Shares Take 30% Pounding

Unfortunately for some shareholders, the Fox Factory Holding Corp. (NASDAQ:FOXF) share price has dived 30% in the last thirty days, prolonging recent pain. For any long-term shareholders, the last month ends a year to forget by locking in a 61% share price decline.

In spite of the heavy fall in price, there still wouldn't be many who think Fox Factory Holding's price-to-sales (or "P/S") ratio of 0.5x is worth a mention when it essentially matches the median P/S in the United States' Auto Components industry. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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Check out our latest analysis for Fox Factory Holding

How Fox Factory Holding Has Been Performing

There hasn't been much to differentiate Fox Factory Holding's and the industry's retreating revenue lately. Perhaps the market is expecting future revenue performance to continue matching the industry, which has kept the P/S in line with expectations. If you still like the company, you'd want its revenue trajectory to turn around before making any decisions. In saying that, existing shareholders probably aren't too pessimistic about the share price if the company's revenue continues tracking the industry.

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

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

In order to justify its P/S ratio, Fox Factory Holding would need to produce growth that's similar to 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 4.6%. 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 7.3% in total. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 2.2% over the next year. Meanwhile, the rest of the industry is forecast to expand by 12%, which is noticeably more attractive.

With this in mind, we find it intriguing that Fox Factory Holding's P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Fox Factory Holding's P/S?

Following Fox Factory Holding's share price tumble, its P/S is just clinging on to the industry median 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.

Our look at the analysts forecasts of Fox Factory Holding's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You need to take note of risks, for example - Fox Factory Holding has 3 warning signs (and 1 which is concerning) we think you should know about.

If you're unsure about the strength of Fox Factory Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.