The Price Is Right For Rent the Runway, Inc. (NASDAQ:RENT) Even After Diving 26%

Rent the Runway, Inc. (NASDAQ:RENT) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 87% loss during that time.

Even after such a large drop in price, it's still not a stretch to say that Rent the Runway's price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in the United States, where the median P/S ratio is around 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

Recent revenue growth for Rent the Runway has been in line with the industry. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Rent the Runway.

Is There Some Revenue Growth Forecasted For Rent the Runway?

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

Retrospectively, the last year delivered a decent 4.5% gain to the company's revenues. The latest three year period has also seen an excellent 89% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 4.3% as estimated by the eight analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 5.5%, which is not materially different.

With this information, we can see why Rent the Runway is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

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

Following Rent the Runway's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

Plus, you should also learn about these 5 warning signs we've spotted with Rent the Runway (including 2 which are concerning).

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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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.