Investors Still Aren't Entirely Convinced By The Honest Company, Inc.'s (NASDAQ:HNST) Revenues Despite 28% Price Jump

The Honest Company, Inc. (NASDAQ:HNST) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 89%.

Although its price has surged higher, Honest Company may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.9x, since almost half of all companies in the Personal Products industry in the United States have P/S ratios greater than 1.5x and even P/S higher than 4x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Honest Company

What Does Honest Company's Recent Performance Look Like?

Recent times haven't been great for Honest Company as its revenue has been rising slower than most other companies. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. 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.

Want the full picture on analyst estimates for the company? Then our free report on Honest Company will help you uncover what's on the horizon.

Is There Any Revenue Growth Forecasted For Honest Company?

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

Retrospectively, the last year delivered a decent 5.7% gain to the company's revenues. The latest three year period has also seen a 12% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 5.5% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 7.2% per annum, which is not materially different.

In light of this, it's peculiar that Honest Company's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Honest Company's P/S

Despite Honest Company's share price climbing recently, its P/S still lags most other companies. 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.

Our examination of Honest Company's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

Plus, you should also learn about these 2 warning signs we've spotted with Honest Company.

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.

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