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With a median price-to-sales (or "P/S") ratio of close to 1x in the Hospitality industry in the United Kingdom, you could be forgiven for feeling indifferent about Deliveroo plc's (LON:ROO) P/S ratio of 0.9x. 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.
Check out our latest analysis for Deliveroo
What Does Deliveroo's Recent Performance Look Like?
Deliveroo could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. However, if this isn't the case, investors might get caught out paying too much for the stock.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Deliveroo.
Is There Some Revenue Growth Forecasted For Deliveroo?
In order to justify its P/S ratio, Deliveroo would need to produce growth that's similar to the industry.
Retrospectively, the last year delivered a decent 14% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 156% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to climb by 9.8% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 9.9% per annum, which is not materially different.
With this in mind, it makes sense that Deliveroo's P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.
What We Can Learn From Deliveroo's P/S?
While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.
Our look at Deliveroo's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.
We don't want to rain on the parade too much, but we did also find 1 warning sign for Deliveroo that you need to be mindful of.