Rent the Runway, Inc. (NASDAQ:RENT) Shares Slammed 41% But Getting In Cheap Might Be Difficult Regardless

The Rent the Runway, Inc. (NASDAQ:RENT) share price has softened a substantial 41% over the previous 30 days, handing back much of the gains the stock has made lately. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 61% loss during that time.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about Rent the Runway's P/S ratio of 0.2x, 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.

View our latest analysis for Rent the Runway

How Rent the Runway Has Been Performing

Rent the Runway 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 Rent the Runway 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, Rent the Runway would need to produce growth that's similar to 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 1.5%. Still, the latest three year period has seen an excellent 104% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 4.1% during the coming year according to the three analysts following the company. With the industry predicted to deliver 3.6% growth , the company is positioned for a comparable revenue result.

With this in mind, it makes sense that Rent the Runway's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Rent the Runway's P/S?

Rent the Runway's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. 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.

Our look at Rent the Runway's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Don't forget that there may be other risks. For instance, we've identified 6 warning signs for Rent the Runway (3 make us uncomfortable) you should be aware of.

If you're unsure about the strength of Rent the Runway'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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com