To the annoyance of some shareholders, Advance Auto Parts, Inc. (NYSE:AAP) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 33% in that time.

Even after such a large drop in price, it's still not a stretch to say that Advance Auto Parts' price-to-sales (or "P/S") ratio of 0.2x right now seems quite "middle-of-the-road" compared to the Specialty Retail industry in the United States, where the median P/S ratio is around 0.4x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

What Does Advance Auto Parts' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Advance Auto Parts has been relatively sluggish. 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.

How Is Advance Auto Parts' Revenue Growth Trending?

Advance Auto Parts' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. That's essentially a continuation of what we've seen over the last three years, as its revenue growth has been virtually non-existent for that entire period. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Looking ahead now, revenue is anticipated to climb by 1.5% each year during the coming three years according to the analysts following the company. That's shaping up to be materially lower than the 5.7% per year growth forecast for the broader industry.

With this in mind, we find it intriguing that Advance Auto Parts' P/S is closely matching its industry peers. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

What We Can Learn From Advance Auto Parts' P/S?

With its share price dropping off a cliff, the P/S for Advance Auto Parts looks to be in line with the rest of the Specialty Retail 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.

Our look at the analysts forecasts of Advance Auto Parts' revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Advance Auto Parts (1 is concerning) you should be aware of.

If you're unsure about the strength of Advance Auto Parts' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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