Lacklustre Performance Is Driving Vestis Corporation's (NYSE:VSTS) 28% Price Drop

Vestis Corporation (NYSE:VSTS) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 65% share price decline.

Following the heavy fall in price, Vestis' price-to-sales (or "P/S") ratio of 0.2x might make it look like a buy right now compared to the Commercial Services industry in the United States, where around half of the companies have P/S ratios above 1.7x and even P/S above 5x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Vestis

What Does Vestis' P/S Mean For Shareholders?

Vestis hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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 Vestis' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Vestis' Revenue Growth Trending?

Vestis' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than 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%. This has erased any of its gains during the last three years, with practically no change in revenue being achieved in total. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 1.9% per year over the next three years. With the industry predicted to deliver 7.5% growth each year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why Vestis' P/S is falling short industry peers. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

Vestis' P/S has taken a dip along with its share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As expected, our analysis of Vestis' 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 1 warning sign for Vestis that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.