LightInTheBox Holding Co., Ltd. (NYSE:LITB) Surges 30% Yet Its Low P/S Is No Reason For Excitement

The LightInTheBox Holding Co., Ltd. (NYSE:LITB) share price has done very well over the last month, posting an excellent gain of 30%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 27% in the last twelve months.

Even after such a large jump in price, LightInTheBox Holding may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 0.2x, considering almost half of all companies in the Multiline Retail industry in the United States have P/S ratios greater than 0.9x and even P/S higher than 3x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for LightInTheBox Holding

How Has LightInTheBox Holding Performed Recently?

For example, consider that LightInTheBox Holding's financial performance has been pretty ordinary lately as revenue growth is non-existent. It might be that many expect the uninspiring revenue performance to worsen, which has repressed the P/S. Those who are bullish on LightInTheBox Holding will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for LightInTheBox Holding, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

In order to justify its P/S ratio, LightInTheBox Holding would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Regardless, revenue has managed to lift by a handy 21% in aggregate from three years ago, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

This is in contrast to the rest of the industry, which is expected to grow by 14% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that LightInTheBox Holding's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

LightInTheBox Holding's stock price has surged recently, but its but its P/S still remains modest. 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.

In line with expectations, LightInTheBox Holding maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 4 warning signs for LightInTheBox Holding (1 doesn't sit too well with us!) that you need to be mindful of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com