Investors Appear Satisfied With The RealReal, Inc.'s (NASDAQ:REAL) Prospects As Shares Rocket 27%

The RealReal, Inc. (NASDAQ:REAL) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 209% in the last year.

Since its price has surged higher, you could be forgiven for thinking RealReal is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.9x, considering almost half the companies in the United States' Specialty Retail industry have P/S ratios below 0.5x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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See our latest analysis for RealReal

What Does RealReal's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, RealReal has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think RealReal's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, RealReal would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. The solid recent performance means it was also able to grow revenue by 13% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 11% over the next year. With the industry only predicted to deliver 7.3%, the company is positioned for a stronger revenue result.

With this information, we can see why RealReal is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From RealReal's P/S?

RealReal's P/S is on the rise since its shares have risen strongly. 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 look into RealReal shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for RealReal (1 is concerning!) that you need to take into consideration.

If you're unsure about the strength of RealReal's 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.