Lulu's Fashion Lounge Holdings, Inc.'s (NASDAQ:LVLU) Popularity With Investors Under Threat As Stock Sinks 25%

To the annoyance of some shareholders, Lulu's Fashion Lounge Holdings, Inc. (NASDAQ:LVLU) shares are down a considerable 25% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 35% share price drop.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Lulu's Fashion Lounge Holdings' P/S ratio of 0.1x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in the United States is also close to 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Lulu's Fashion Lounge Holdings

What Does Lulu's Fashion Lounge Holdings' P/S Mean For Shareholders?

Lulu's Fashion Lounge Holdings could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. 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 Lulu's Fashion Lounge Holdings.

How Is Lulu's Fashion Lounge Holdings' Revenue Growth Trending?

Lulu's Fashion Lounge Holdings' 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, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 19%. Still, the latest three year period has seen an excellent 43% overall rise in revenue, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would definitely welcome the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 2.7% per annum during the coming three years according to the four analysts following the company. That's shaping up to be materially lower than the 5.6% per year growth forecast for the broader industry.

With this in mind, we find it intriguing that Lulu's Fashion Lounge Holdings' P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Lulu's Fashion Lounge Holdings' P/S

With its share price dropping off a cliff, the P/S for Lulu's Fashion Lounge Holdings looks to be in line with the rest of the Specialty Retail industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Given that Lulu's Fashion Lounge Holdings' revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Before you settle on your opinion, we've discovered 3 warning signs for Lulu's Fashion Lounge Holdings that you should be aware of.

If these risks are making you reconsider your opinion on Lulu's Fashion Lounge Holdings, 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.