Purple Innovation, Inc.'s (NASDAQ:PRPL) Price Is Right But Growth Is Lacking

When close to half the companies operating in the Consumer Durables industry in the United States have price-to-sales ratios (or "P/S") above 0.9x, you may consider Purple Innovation, Inc. (NASDAQ:PRPL) as an attractive investment with its 0.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Purple Innovation

What Does Purple Innovation's Recent Performance Look Like?

Purple Innovation's revenue growth of late has been pretty similar to most other companies. It might be that many expect the mediocre revenue performance to degrade, which has repressed the P/S ratio. Those who are bullish on Purple Innovation will be hoping that this isn't the case.

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

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Purple Innovation's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 2.8%. Ultimately though, it couldn't turn around the poor performance of the prior period, with revenue shrinking 28% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 2.8% each year over the next three years. That's shaping up to be materially lower than the 6.8% each year growth forecast for the broader industry.

With this in consideration, its clear as to why Purple Innovation's 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 Key Takeaway

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 we suspected, our examination of Purple Innovation's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 3 warning signs for Purple Innovation you should be aware of.

If these risks are making you reconsider your opinion on Purple Innovation, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.