After Leaping 51% Abercrombie & Fitch Co. (NYSE:ANF) Shares Are Not Flying Under The Radar

The Abercrombie & Fitch Co. (NYSE:ANF) share price has done very well over the last month, posting an excellent gain of 51%. The last 30 days were the cherry on top of the stock's 511% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, given close to half the companies operating in the United States' Specialty Retail industry have price-to-sales ratios (or "P/S") below 0.4x, you may consider Abercrombie & Fitch as a stock to potentially avoid with its 2.3x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

Check out our latest analysis for Abercrombie & Fitch

What Does Abercrombie & Fitch's P/S Mean For Shareholders?

Recent times have been advantageous for Abercrombie & Fitch as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Abercrombie & Fitch.

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

The only time you'd be truly comfortable seeing a P/S as high as Abercrombie & Fitch's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company grew revenue by an impressive 16% last year. The latest three year period has also seen an excellent 37% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 7.8% over the next year. With the industry only predicted to deliver 3.7%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Abercrombie & Fitch's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Abercrombie & Fitch's P/S Mean For Investors?

Abercrombie & Fitch shares have taken a big step in a northerly direction, but its P/S is elevated as a result. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Abercrombie & Fitch maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Specialty Retail industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You should always think about risks. Case in point, we've spotted 2 warning signs for Abercrombie & Fitch 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.