Insufficient Growth At Nerdy, Inc. (NYSE:NRDY) Hampers Share Price

Nerdy, Inc.'s (NYSE:NRDY) price-to-sales (or "P/S") ratio of 1x may look like a pretty appealing investment opportunity when you consider close to half the companies in the Consumer Services industry in the United States have P/S ratios greater than 1.6x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

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View our latest analysis for Nerdy

What Does Nerdy's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Nerdy's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think Nerdy's future stacks up against the industry? In that case, our free report is a great place to start.

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

The only time you'd be truly comfortable seeing a P/S as low as Nerdy's is when the company's growth is on track to lag the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 1.6%. 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. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 8.3% per annum as estimated by the seven analysts watching the company. With the industry predicted to deliver 13% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Nerdy's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Nerdy's P/S?

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.

As we suspected, our examination of Nerdy'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. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 2 warning signs for Nerdy you should be aware of.

If these risks are making you reconsider your opinion on Nerdy, 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.