Wag! Group Co.'s (NASDAQ:PET) Shares Bounce 36% But Its Business Still Trails The Industry

Wag! Group Co. (NASDAQ:PET) shares have continued their recent momentum with a 36% gain in the last month alone. But the last month did very little to improve the 84% share price decline over the last year.

In spite of the firm bounce in price, it would still be understandable if you think Wag! Group is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.2x, considering almost half the companies in the United States' Consumer Services industry have P/S ratios above 1.9x. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Wag! Group

How Wag! Group Has Been Performing

Wag! Group could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

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

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Wag! Group would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered a frustrating 3.2% decrease to the company's top line. Even so, admirably revenue has lifted 282% in aggregate from three years ago, notwithstanding the last 12 months. 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 year should bring diminished returns, with revenue decreasing 3.3% as estimated by the sole analyst watching the company. With the industry predicted to deliver 13% growth, that's a disappointing outcome.

In light of this, it's understandable that Wag! Group's P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

Wag! Group's stock price has surged recently, but its but its P/S still remains modest. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It's clear to see that Wag! Group maintains its low P/S on the weakness of its forecast for sliding revenue, as expected. As other companies in the industry are forecasting revenue growth, Wag! Group's poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.

And what about other risks? Every company has them, and we've spotted 5 warning signs for Wag! Group you should know about.

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).

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.