Some Vera Bradley, Inc. (NASDAQ:VRA) Shareholders Look For Exit As Shares Take 35% Pounding

Vera Bradley, Inc. (NASDAQ:VRA) shareholders that were waiting for something to happen have been dealt a blow with a 35% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 56% loss during that time.

Although its price has dipped substantially, there still wouldn't be many who think Vera Bradley's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in the United States' Luxury industry is similar at about 0.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Vera Bradley

How Vera Bradley Has Been Performing

Vera Bradley could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

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

How Is Vera Bradley's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Vera Bradley's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 16% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 24% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to slump, contracting by 2.8% during the coming year according to the dual analysts following the company. That's not great when the rest of the industry is expected to grow by 4.3%.

With this information, we find it concerning that Vera Bradley is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does Vera Bradley's P/S Mean For Investors?

Vera Bradley's plummeting stock price has brought its P/S back to a similar region as the rest of the 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.

While Vera Bradley's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Vera Bradley with six simple checks.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.