Why We're Not Concerned Yet About Allbirds, Inc.'s (NASDAQ:BIRD) 27% Share Price Plunge

To the annoyance of some shareholders, Allbirds, Inc. (NASDAQ:BIRD) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 73% loss during that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Allbirds' P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Luxury industry in the United States is also close to 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Allbirds

How Allbirds Has Been Performing

While the industry has experienced revenue growth lately, Allbirds' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The P/S Ratio?

Allbirds' 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 14%. 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 21% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should generate growth of 10% each year as estimated by the ten analysts watching the company. With the industry predicted to deliver 8.9% growth per year, the company is positioned for a comparable revenue result.

With this information, we can see why Allbirds is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Allbirds' P/S

With its share price dropping off a cliff, the P/S for Allbirds looks to be in line with the rest of the Luxury 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 look at Allbirds' 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. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Allbirds 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.