The Honest Company, Inc. (NASDAQ:HNST) Not Flying Under The Radar

There wouldn't be many who think The Honest Company, Inc.'s (NASDAQ:HNST) price-to-sales (or "P/S") ratio of 1.2x is worth a mention when the median P/S for the Personal Products industry in the United States is very similar. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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View our latest analysis for Honest Company

What Does Honest Company's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Honest Company has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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Is There Some Revenue Growth Forecasted For Honest Company?

The only time you'd be comfortable seeing a P/S like Honest Company's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 9.9% last year. Revenue has also lifted 19% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 5.1% each year over the next three years. That's shaping up to be similar to the 3.7% each year growth forecast for the broader industry.

With this in mind, it makes sense that Honest Company's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Honest Company's P/S?

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.

We've seen that Honest Company maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Having said that, be aware Honest Company is showing 1 warning sign in our investment analysis, 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).

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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.