CarParts.com, Inc.'s (NASDAQ:PRTS) Shares Climb 51% But Its Business Is Yet to Catch Up

CarParts.com, Inc. (NASDAQ:PRTS) shares have had a really impressive month, gaining 51% after a shaky period beforehand. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 65% share price drop in the last twelve months.

Even after such a large jump in price, there still wouldn't be many who think CarParts.com's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in the United States' Specialty Retail industry is similar at about 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for CarParts.com

How CarParts.com Has Been Performing

CarParts.com could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

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.

What Are Revenue Growth Metrics Telling Us About The P/S?

There's an inherent assumption that a company should be matching the industry for P/S ratios like CarParts.com's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 9.2% decrease to the company's top line. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 8.5% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 0.9% as estimated by the three analysts watching the company. With the industry predicted to deliver 4.3% 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.

What Does CarParts.com's P/S Mean For Investors?

Its shares have lifted substantially and now CarParts.com's 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.

While CarParts.com's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue 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.

It is also worth noting that we have found 2 warning signs for CarParts.com that you need to take into consideration.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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