Driven Brands Holdings Inc.'s (NASDAQ:DRVN) P/S Still Appears To Be Reasonable

It's not a stretch to say that Driven Brands Holdings Inc.'s (NASDAQ:DRVN) price-to-sales (or "P/S") ratio of 1x right now seems quite "middle-of-the-road" for companies in the Commercial Services industry in the United States, where the median P/S ratio is around 1.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Driven Brands Holdings

What Does Driven Brands Holdings' P/S Mean For Shareholders?

Driven Brands Holdings could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Driven Brands Holdings.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Driven Brands Holdings would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 4.3%. Pleasingly, revenue has also lifted 84% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 8.9% per annum over the next three years. Meanwhile, the rest of the industry is forecast to expand by 10% each year, which is not materially different.

In light of this, it's understandable that Driven Brands Holdings' P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

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.

Our look at Driven Brands Holdings' revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Driven Brands Holdings you should know about.

If you're unsure about the strength of Driven Brands Holdings' 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.