Sportsman's Warehouse Holdings, Inc.'s (NASDAQ:SPWH) Business Is Trailing The Industry But Its Shares Aren't

There wouldn't be many who think Sportsman's Warehouse Holdings, Inc.'s (NASDAQ:SPWH) price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S for the Specialty Retail industry in the United States is similar at about 0.4x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Sportsman's Warehouse Holdings

How Has Sportsman's Warehouse Holdings Performed Recently?

Sportsman's Warehouse Holdings 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. 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 Sportsman's Warehouse Holdings will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Sportsman's Warehouse Holdings?

Sportsman's Warehouse Holdings' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.8%. This means it has also seen a slide in revenue over the longer-term as revenue is down 11% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 6.6% as estimated by the four analysts watching the company. That's not great when the rest of the industry is expected to grow by 3.7%.

With this in consideration, we think it doesn't make sense that Sportsman's Warehouse Holdings' P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What Does Sportsman's Warehouse Holdings' P/S Mean For Investors?

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 check of Sportsman's Warehouse Holdings' analyst forecasts revealed that its outlook for shrinking revenue isn't bringing down its P/S as much as we would have predicted. 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 the declining revenues were to materialize in the form of a declining share price, shareholders will be feeling the pinch.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Sportsman's Warehouse Holdings that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.