Driven Brands Holdings Inc.'s (NASDAQ:DRVN) price-to-sales (or "P/S") ratio of 0.9x might make it look like a buy right now compared to the Commercial Services industry in the United States, where around half of the companies have P/S ratios above 1.4x and even P/S above 4x 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 limited.

What Does Driven Brands Holdings' P/S Mean For Shareholders?

With revenue growth that's inferior to most other companies of late, Driven Brands Holdings has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Driven Brands Holdings would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 4.3%. The latest three year period has also seen an excellent 84% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 8.9% each year during the coming three years according to the twelve analysts following the company. That's shaping up to be similar to the 9.9% per year growth forecast for the broader industry.

With this information, we find it odd that Driven Brands Holdings is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can achieve future growth expectations.

What Does Driven Brands Holdings' P/S Mean For Investors?

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.

It looks to us like the P/S figures for Driven Brands Holdings remain low despite growth that is expected to be in line with other companies in the industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

You always need to take note of risks, for example - Driven Brands Holdings has 1 warning sign we think you should be aware of.

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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