Zevia PBC (NYSE:ZVIA) shareholders are no doubt pleased to see that the share price has bounced 30% in the last month, although it is still struggling to make up recently lost ground. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 60% share price drop in the last twelve months.

Even after such a large jump in price, Zevia PBC's price-to-sales (or "P/S") ratio of 0.4x might still make it look like a strong buy right now compared to the wider Beverage industry in the United States, where around half of the companies have P/S ratios above 2.8x and even P/S above 6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

What Does Zevia PBC's P/S Mean For Shareholders?

Zevia PBC hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

How Is Zevia PBC's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Zevia PBC's to be considered reasonable.

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 3.1%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 28% overall rise in revenue. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 4.1% over the next year. With the industry predicted to deliver 3.7% growth , the company is positioned for a comparable revenue result.

In light of this, it's peculiar that Zevia PBC's P/S sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What Does Zevia PBC's P/S Mean For Investors?

Shares in Zevia PBC have risen appreciably however, its P/S is still subdued. 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.

We've seen that Zevia PBC currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. When we see middle-of-the-road revenue growth like this, we assume it must be the potential risks that are what is placing pressure on the P/S ratio. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

It is also worth noting that we have found 3 warning signs for Zevia PBC (1 shouldn't be ignored!) that you need to take into consideration.

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

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