Revenues Working Against Jack in the Box Inc.'s (NASDAQ:JACK) Share Price Following 28% Dive

To the annoyance of some shareholders, Jack in the Box Inc. (NASDAQ:JACK) shares are down a considerable 28% 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 60% loss during that time.

After such a large drop in price, considering around half the companies operating in the United States' Hospitality industry have price-to-sales ratios (or "P/S") above 1.7x, you may consider Jack in the Box as an solid investment opportunity with its 0.3x 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.

See our latest analysis for Jack in the Box

How Has Jack in the Box Performed Recently?

Jack in the Box hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Jack in the Box.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Jack in the Box would need to produce sluggish growth that's trailing the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 6.1%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 35% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 0.9% per year as estimated by the analysts watching the company. With the industry predicted to deliver 13% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why Jack in the Box is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

The southerly movements of Jack in the Box's shares means its P/S is now sitting at a pretty low level. 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.

As we suspected, our examination of Jack in the Box'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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Jack in the Box (1 is significant!) that you should be aware of.

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

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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.