a.k.a. Brands Holding Corp. (NYSE:AKA) Stock Rockets 32% As Investors Are Less Pessimistic Than Expected

The a.k.a. Brands Holding Corp. (NYSE:AKA) share price has done very well over the last month, posting an excellent gain of 32%. The last month tops off a massive increase of 185% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that a.k.a. Brands Holding's price-to-sales (or "P/S") ratio of 0.2x 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 a.k.a. Brands Holding

What Does a.k.a. Brands Holding's P/S Mean For Shareholders?

a.k.a. Brands Holding 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.

Keen to find out how analysts think a.k.a. Brands Holding's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The P/S?

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

Retrospectively, the last year delivered a frustrating 11% decrease to the company's top line. Still, the latest three year period has seen an excellent 153% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Looking ahead now, revenue is anticipated to climb by 3.0% per annum during the coming three years according to the five analysts following the company. That's shaping up to be materially lower than the 5.5% per annum growth forecast for the broader industry.

In light of this, it's curious that a.k.a. Brands Holding's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On a.k.a. Brands Holding's P/S

a.k.a. Brands Holding's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

When you consider that a.k.a. Brands Holding's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

It is also worth noting that we have found 2 warning signs for a.k.a. Brands Holding that you need to take into consideration.

If these risks are making you reconsider your opinion on a.k.a. Brands Holding, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.