Rent the Runway, Inc. (NASDAQ:RENT) Stocks Shoot Up 191% But Its P/S Still Looks Reasonable

Rent the Runway, Inc. (NASDAQ:RENT) shares have continued their recent momentum with a 191% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 29% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Rent the Runway's P/S ratio of 0.4x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in the United States is about the same. 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 Rent the Runway

How Rent the Runway Has Been Performing

Rent the Runway could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio 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 Rent the Runway will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

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

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Although pleasingly revenue has lifted 89% in aggregate from three years ago, notwithstanding the last 12 months. Therefore, it's fair to say the revenue growth recently has been great for the company, but investors will want to ask why it has slowed to such an extent.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 3.2% over the next year. With the industry predicted to deliver 3.6% growth , the company is positioned for a comparable revenue result.

In light of this, it's understandable that Rent the Runway's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Key Takeaway

Its shares have lifted substantially and now Rent the Runway's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've seen that Rent the Runway maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. 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. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

Before you take the next step, you should know about the 5 warning signs for Rent the Runway (3 are a bit concerning!) that we have uncovered.

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.

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

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.