What The Container Store Group, Inc.'s (NYSE:TCS) 29% Share Price Gain Is Not Telling You

The Container Store Group, Inc. (NYSE:TCS) shareholders have had their patience rewarded with a 29% share price jump in the last month. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 41% in the last twelve months.

Although its price has surged higher, there still wouldn't be many who think Container Store Group's price-to-sales (or "P/S") ratio of 0.1x is worth a mention when the median P/S in the United States' Specialty Retail industry is similar at about 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.

See our latest analysis for Container Store Group

How Container Store Group Has Been Performing

While the industry has experienced revenue growth lately, Container Store Group's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. 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 Container Store Group.

How Is Container Store Group's Revenue Growth Trending?

In order to justify its P/S ratio, Container Store Group would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 15%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 7.9% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 3.6% as estimated by the three analysts watching the company. Meanwhile, the broader industry is forecast to expand by 5.4%, which paints a poor picture.

With this in consideration, we think it doesn't make sense that Container Store Group's P/S is closely matching its industry peers. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

The Bottom Line On Container Store Group's P/S

Container Store Group appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

While Container Store Group's P/S isn't anything out of the ordinary for companies in the industry, we didn't expect it given forecasts of revenue decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Before you settle on your opinion, we've discovered 2 warning signs for Container Store Group (1 shouldn't be ignored!) that you should be aware 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.