Unpleasant Surprises Could Be In Store For Petco Health and Wellness Company, Inc.'s (NASDAQ:WOOF) Shares

It's not a stretch to say that Petco Health and Wellness Company, Inc.'s (NASDAQ:WOOF) price-to-sales (or "P/S") ratio of 0.1x right now seems quite "middle-of-the-road" for companies in the Specialty Retail industry in the United States, where the median P/S ratio is around 0.4x. 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 Petco Health and Wellness Company

What Does Petco Health and Wellness Company's Recent Performance Look Like?

There hasn't been much to differentiate Petco Health and Wellness Company's and the industry's revenue growth lately. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Petco Health and Wellness Company.

How Is Petco Health and Wellness Company's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Petco Health and Wellness Company's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company managed to grow revenues by a handy 3.1% last year. The latest three year period has also seen an excellent 30% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 1.5% per year during the coming three years according to the analysts following the company. With the industry predicted to deliver 6.9% growth per annum, the company is positioned for a weaker revenue result.

In light of this, it's curious that Petco Health and Wellness Company's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Petco Health and Wellness Company's P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Given that Petco Health and Wellness Company's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Before you settle on your opinion, we've discovered 1 warning sign for Petco Health and Wellness Company that you should be aware of.

If these risks are making you reconsider your opinion on Petco Health and Wellness Company, explore our interactive list of high quality stocks to get an idea of what else is out there.

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.