Risks To Shareholder Returns Are Elevated At These Prices For Grove Collaborative Holdings, Inc. (NYSE:GROV)

With a median price-to-sales (or "P/S") ratio of close to 0.4x in the Specialty Retail industry in the United States, you could be forgiven for feeling indifferent about Grove Collaborative Holdings, Inc.'s (NYSE:GROV) P/S ratio of 0.3x. 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.

See our latest analysis for Grove Collaborative Holdings

How Grove Collaborative Holdings Has Been Performing

While the industry has experienced revenue growth lately, Grove Collaborative Holdings' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Grove Collaborative Holdings.

Is There Some Revenue Growth Forecasted For Grove Collaborative Holdings?

In order to justify its P/S ratio, Grove Collaborative Holdings would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 18% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 25% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 6.7% as estimated by the dual analysts watching the company. With the industry predicted to deliver 4.9% growth, that's a disappointing outcome.

With this in consideration, we think it doesn't make sense that Grove Collaborative Holdings' P/S is closely matching its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does Grove Collaborative Holdings' P/S Mean For Investors?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our check of Grove Collaborative 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 poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Grove Collaborative 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.