Some Confidence Is Lacking In Krispy Kreme, Inc.'s (NASDAQ:DNUT) P/S

There wouldn't be many who think Krispy Kreme, Inc.'s (NASDAQ:DNUT) price-to-sales (or "P/S") ratio of 1.4x is worth a mention when the median P/S for the Hospitality industry in the United States is similar at about 1.3x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Krispy Kreme

What Does Krispy Kreme's P/S Mean For Shareholders?

Krispy Kreme could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Krispy Kreme would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.6% last year. This was backed up an excellent period prior to see revenue up by 46% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 7.6% over the next year. With the industry predicted to deliver 15% growth, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Krispy Kreme's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Krispy Kreme's P/S?

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at the analysts forecasts of Krispy Kreme's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Krispy Kreme with six simple checks on some of these key factors.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.