Unfortunately for some shareholders, the Allbirds, Inc. (NASDAQ:BIRD) share price has dived 27% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 61% loss during that time.

Although its price has dipped substantially, it's still not a stretch to say that Allbirds' price-to-sales (or "P/S") ratio of 0.3x right now seems quite "middle-of-the-road" compared to the Luxury industry in the United States, where the median P/S ratio is around 0.8x. 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.

What Does Allbirds' P/S Mean For Shareholders?

Allbirds could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Is There Some Revenue Growth Forecasted For Allbirds?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Allbirds' 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 23%. This means it has also seen a slide in revenue over the longer-term as revenue is down 21% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 10% as estimated by the four analysts watching the company. That's not great when the rest of the industry is expected to grow by 4.0%.

With this information, we find it concerning that Allbirds is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

The Final Word

With its share price dropping off a cliff, the P/S for Allbirds looks to be in line with the rest of the Luxury industry. 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 appears that Allbirds currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. With this in mind, we don't feel the current P/S is justified as declining revenues are unlikely to support a more positive sentiment for long. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

You should always think about risks. Case in point, we've spotted 4 warning signs for Allbirds you should be aware of.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.