Zumiez Inc.’s (NASDAQ:ZUMZ) Business Is Trailing The Industry But Its Shares Aren’t

There wouldn’t be many who think Zumiez Inc.’s (NASDAQ:ZUMZ) price-to-sales (or “P/S”) ratio of 0.4x is worth a mention when the median P/S for the Specialty Retail industry in the United States is very similar. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for Zumiez

NasdaqGS:ZUMZ Price to Sales Ratio vs Industry April 23rd 2024

What Does Zumiez’s Recent Performance Look Like?

Zumiez could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may 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 Zumiez.

How Is Zumiez’s Revenue Growth Trending?

The only time you’d be comfortable seeing a P/S like Zumiez’s is when the company’s growth is tracking the industry closely.

Taking a look back first, the company’s revenue growth last year wasn’t something to get excited about as it posted a disappointing decline of 8.4%. The last three years don’t look nice either as the company has shrunk revenue by 12% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to slump, contracting by 0.3% during the coming year according to the four analysts following the company. With the industry predicted to deliver 3.6% growth, that’s a disappointing outcome.

With this in consideration, we think it doesn’t make sense that Zumiez’s 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. Only the boldest would assume these prices are sustainable as these declining revenues are likely to weigh on the share price eventually.

What We Can Learn From Zumiez’s P/S?

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 Zumiez’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. 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.

You always need to take note of risks, for example – Zumiez has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Zumiez, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we’re helping make it simple.

Find out whether Zumiez is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.


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