Investors Appear Satisfied With ThredUp Inc.'s (NASDAQ:TDUP) Prospects As Shares Rocket 28%

Explore ThredUp's Fair Values from the Community and select yours

Despite an already strong run, ThredUp Inc. (NASDAQ:TDUP) shares have been powering on, with a gain of 28% in the last thirty days. This latest share price bounce rounds out a remarkable 1,486% gain over the last twelve months.

Since its price has surged higher, you could be forgiven for thinking ThredUp is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.5x, considering almost half the companies in the United States' Specialty Retail industry have P/S ratios below 0.4x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Check out our latest analysis for ThredUp

How Has ThredUp Performed Recently?

With revenue growth that's superior to most other companies of late, ThredUp has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on ThredUp will help you uncover what's on the horizon.

How Is ThredUp's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like ThredUp's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 2.6% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 6.0% growth forecast for the broader industry.

With this in mind, it's not hard to understand why ThredUp's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in ThredUp have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 ThredUp shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for ThredUp that you need to be mindful 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).

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.