Revenues Tell The Story For Citi Trends, Inc. (NASDAQ:CTRN) As Its Stock Soars 28%

Those holding Citi Trends, Inc. (NASDAQ:CTRN) 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. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Even after such a large jump in price, it's still not a stretch to say that Citi Trends' price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in the United States, where the median P/S ratio is around 0.4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

We check all companies for important risks. See what we found for Citi Trends in our free report.

Check out our latest analysis for Citi Trends

How Has Citi Trends Performed Recently?

Citi Trends could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Citi Trends.

How Is Citi Trends' Revenue Growth Trending?

Citi Trends' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with revenue down 24% overall from three years ago. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 5.0% per annum during the coming three years according to the two analysts following the company. That's shaping up to be similar to the 5.8% per annum growth forecast for the broader industry.

In light of this, it's understandable that Citi Trends' P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Its shares have lifted substantially and now Citi Trends' P/S is back within range of the industry median. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've seen that Citi Trends 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. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Citi Trends with six simple checks will allow you to discover any risks that could be an issue.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.