Rush Street Interactive, Inc.'s (NYSE:RSI) Price Is Right But Growth Is Lacking After Shares Rocket 41%

Rush Street Interactive, Inc. (NYSE:RSI) shares have had a really impressive month, gaining 41% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 32%.

Even after such a large jump in price, it would still be understandable if you think Rush Street Interactive is a stock with good investment prospects with a price-to-sales ratios (or "P/S") of 0.6x, considering almost half the companies in the United States' Hospitality industry have P/S ratios above 1.3x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Rush Street Interactive

What Does Rush Street Interactive's P/S Mean For Shareholders?

Rush Street Interactive could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could 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 Rush Street Interactive.

Is There Any Revenue Growth Forecasted For Rush Street Interactive?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Rush Street Interactive's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. Pleasingly, revenue has also lifted 221% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 11% as estimated by the eight analysts watching the company. With the industry predicted to deliver 16% growth, the company is positioned for a weaker revenue result.

With this information, we can see why Rush Street Interactive is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Rush Street Interactive's P/S Mean For Investors?

Despite Rush Street Interactive's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Rush Street Interactive's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Rush Street Interactive, and understanding should be part of your investment process.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.