Waldencast plc (NASDAQ:WALD) Shares Slammed 29% But Getting In Cheap Might Be Difficult Regardless

To the annoyance of some shareholders, Waldencast plc (NASDAQ:WALD) shares are down a considerable 29% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 52% loss during that time.

Although its price has dipped substantially, when almost half of the companies in the United States' Personal Products industry have price-to-sales ratios (or "P/S") below 1.8x, you may still consider Waldencast as a stock probably not worth researching with its 2.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Waldencast

How Has Waldencast Performed Recently?

Waldencast certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Waldencast?

There's an inherent assumption that a company should outperform the industry for P/S ratios like Waldencast's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 31% gain to the company's top line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 20% as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 7.9% growth forecast for the broader industry.

With this information, we can see why Waldencast is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Waldencast's P/S remain high even after its stock plunged. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Waldencast's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Waldencast (1 is a bit concerning!) that you should be aware of before investing here.

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.