RumbleON, Inc. (NASDAQ:RMBL) shareholders have had their patience rewarded with a 33% share price jump in the last month. Taking a wider view, although not as strong as the last month, the full year gain of 24% is also fairly reasonable.

In spite of the firm bounce in price, there still wouldn't be many who think RumbleON's price-to-sales (or "P/S") ratio of 0.2x is worth a mention when the median P/S in the United States' Specialty Retail industry is similar at about 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.

View our latest analysis for RumbleON

What Does RumbleON's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, RumbleON has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Is There Some Revenue Growth Forecasted For RumbleON?

There's an inherent assumption that a company should be matching the industry for P/S ratios like RumbleON's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. Pleasingly, revenue has also lifted 264% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 4.1% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 6.9% each year, which is noticeably more attractive.

With this information, we find it interesting that RumbleON is trading at a fairly similar P/S compared to the industry. 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.

The Key Takeaway

Its shares have lifted substantially and now RumbleON's P/S is back within range of the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

When you consider that RumbleON'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. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for RumbleON you should be aware of, and 1 of them is potentially serious.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.