CarParts.com, Inc.'s (NASDAQ:PRTS) Share Price Could Signal Some Risk

With a median price-to-sales (or "P/S") ratio of close to 0.4x in the Specialty Retail industry in the United States, you could be forgiven for feeling indifferent about CarParts.com, Inc.'s (NASDAQ:PRTS) P/S ratio of 0.2x. 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.

Check out our latest analysis for CarParts.com

How CarParts.com Has Been Performing

Recent times haven't been great for CarParts.com as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. 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 CarParts.com will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, CarParts.com would need to produce growth that's similar to 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. Still, the latest three year period has seen an excellent 52% overall rise in revenue, in spite of its uninspiring short-term performance. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Shifting to the future, estimates from the four analysts covering the company suggest revenue growth is heading into negative territory, declining 0.2% over the next year. With the industry predicted to deliver 4.5% growth, that's a disappointing outcome.

With this information, we find it concerning that CarParts.com is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Bottom Line On CarParts.com's P/S

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.

It appears that CarParts.com currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

Before you settle on your opinion, we've discovered 1 warning sign for CarParts.com that you should be aware of.

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.

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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.