TrueCar, Inc. (NASDAQ:TRUE) Stocks Shoot Up 28% But Its P/S Still Looks Reasonable

Those holding TrueCar, Inc. (NASDAQ:TRUE) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 46% in the last twelve months.

In spite of the firm bounce in price, it's still not a stretch to say that TrueCar's price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" compared to the Interactive Media and Services industry in the United States, where the median P/S ratio is around 1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Our free stock report includes 1 warning sign investors should be aware of before investing in TrueCar. Read for free now.

See our latest analysis for TrueCar

How Has TrueCar Performed Recently?

TrueCar could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Some Revenue Growth Forecasted For TrueCar?

The only time you'd be comfortable seeing a P/S like TrueCar'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 10% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 15% overall drop in revenue. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 12% per annum during the coming three years according to the six analysts following the company. That's shaping up to be similar to the 12% per annum growth forecast for the broader industry.

In light of this, it's understandable that TrueCar's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Its shares have lifted substantially and now TrueCar's P/S is back within range of the industry median. 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.

We've seen that TrueCar maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for TrueCar that you should be aware of.

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