Sleep Number Corporation (NASDAQ:SNBR) shareholders that were waiting for something to happen have been dealt a blow with a 43% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 65% loss during that time.

Although its price has dipped substantially, it's still not a stretch to say that Sleep Number's price-to-sales (or "P/S") ratio of 0.1x 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. 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.

How Sleep Number Has Been Performing

While the industry has experienced revenue growth lately, Sleep Number's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For Sleep Number?

In order to justify its P/S ratio, Sleep Number 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 13%. The last three years don't look nice either as the company has shrunk revenue by 6.2% in aggregate. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 1.6% per annum during the coming three years according to the five analysts following the company. With the industry predicted to deliver 5.7% growth each year, the company is positioned for a weaker revenue result.

With this in mind, we find it intriguing that Sleep Number's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. 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 Sleep Number's P/S?

Following Sleep Number's share price tumble, its P/S is just clinging on to the industry median 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.

When you consider that Sleep Number's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. 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.

Before you take the next step, you should know about the 2 warning signs for Sleep Number that we have uncovered.

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.

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