Eventbrite, Inc. (NYSE:EB) Stock Catapults 26% Though Its Price And Business Still Lag The Industry

Eventbrite, Inc. (NYSE:EB) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 58% share price drop in the last twelve months.

Even after such a large jump in price, Eventbrite may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 0.7x, since almost half of all companies in the Entertainment industry in the United States have P/S ratios greater than 1.2x and even P/S higher than 5x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

We've discovered 1 warning sign about Eventbrite. View them for free.

Check out our latest analysis for Eventbrite

What Does Eventbrite's P/S Mean For Shareholders?

While the industry has experienced revenue growth lately, Eventbrite's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still like the company, you'd be hoping this isn't the case so that you could potentially 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 Eventbrite will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as low as Eventbrite's is when the company's growth is on track to lag the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Although pleasingly revenue has lifted 74% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, shareholders will be pleased, but also have some questions to ponder about the last 12 months.

Looking ahead now, revenue is anticipated to climb by 5.4% per annum during the coming three years according to the five analysts following the company. With the industry predicted to deliver 12% growth per year, the company is positioned for a weaker revenue result.

In light of this, it's understandable that Eventbrite's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Despite Eventbrite'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 expected, our analysis of Eventbrite's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 1 warning sign for Eventbrite you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.