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

Citi Trends, Inc. (NASDAQ:CTRN) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The last month tops off a massive increase of 173% in the last year.

Although its price has surged higher, it's still not a stretch to say that Citi Trends' price-to-sales (or "P/S") ratio of 0.4x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in the United States, seeing as it matches the P/S ratio of the wider industry. 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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See our latest analysis for Citi Trends

What Does Citi Trends' P/S Mean For Shareholders?

Citi Trends could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The P/S Ratio?

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.

If we review the last year of revenue growth, the company posted a worthy increase of 3.3%. However, this wasn't enough as the latest three year period has seen an unpleasant 9.2% 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 5.5% per year during the coming three years according to the two analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 6.8% per year, which is not materially different.

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

The Bottom Line On Citi Trends' P/S

Its shares have lifted substantially and now Citi Trends' P/S is back within range of the industry median. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've seen that Citi Trends 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Citi Trends with six simple checks.

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.