Optimistic Investors Push Hanesbrands Inc. (NYSE:HBI) Shares Up 27% But Growth Is Lacking

Despite an already strong run, Hanesbrands Inc. (NYSE:HBI) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 129% in the last year.

Even after such a large jump in price, there still wouldn't be many who think Hanesbrands' price-to-sales (or "P/S") ratio of 0.6x is worth a mention when the median P/S in the United States' Luxury industry is similar at about 0.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Hanesbrands

What Does Hanesbrands' P/S Mean For Shareholders?

Recent times have been advantageous for Hanesbrands as its revenues have been rising faster than most other companies. One possibility is that the P/S ratio is moderate because investors think this strong revenue performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

How Is Hanesbrands' Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Hanesbrands' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered an exceptional 25% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 19% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 11% per year as estimated by the six analysts watching the company. Meanwhile, the broader industry is forecast to expand by 6.9% each year, which paints a poor picture.

With this information, we find it concerning that Hanesbrands 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. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Final Word

Hanesbrands' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

It appears that Hanesbrands currently trades on a higher than expected P/S for a company whose revenues are forecast to 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 the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Hanesbrands 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.