Some Lulu's Fashion Lounge Holdings, Inc. (NASDAQ:LVLU) Shareholders Look For Exit As Shares Take 29% Pounding

The Lulu's Fashion Lounge Holdings, Inc. (NASDAQ:LVLU) share price has fared very poorly over the last month, falling by a substantial 29%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 43% in that time.

In spite of the heavy fall in price, 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. 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.

See our latest analysis for Lulu's Fashion Lounge Holdings

How Has Lulu's Fashion Lounge Holdings Performed Recently?

While the industry has experienced revenue growth lately, Lulu's Fashion Lounge Holdings' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Lulu's Fashion Lounge Holdings will help you uncover what's on the horizon.

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

The only time you'd be comfortable seeing a P/S like Lulu's Fashion Lounge Holdings' is when the company's growth is tracking the industry closely.

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 38% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 2.2% as estimated by the four analysts watching the company. With the industry predicted to deliver 3.6% growth, that's a disappointing outcome.

With this information, we find it concerning that Lulu's Fashion Lounge Holdings is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Final Word

Lulu's Fashion Lounge Holdings' plummeting stock price has brought its P/S back to a similar region as the rest of the 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.

Our check of Lulu's Fashion Lounge Holdings' analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Lulu's Fashion Lounge Holdings that you should be aware of.

If you're unsure about the strength of Lulu's Fashion Lounge Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.