ATRenew Inc. (NYSE:RERE) shares have continued their recent momentum with a 31% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 98%.

Although its price has surged higher, it's still not a stretch to say that ATRenew's price-to-sales (or "P/S") ratio of 0.4x 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 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How ATRenew Has Been Performing

With revenue growth that's superior to most other companies of late, ATRenew has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

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

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

If we review the last year of revenue growth, the company posted a terrific increase of 27%. The latest three year period has also seen an excellent 120% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 26% as estimated by the only analyst watching the company. With the industry only predicted to deliver 4.3%, the company is positioned for a stronger revenue result.

In light of this, it's curious that ATRenew's P/S sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What Does ATRenew's P/S Mean For Investors?

ATRenew appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the 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.

Looking at ATRenew's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for ATRenew you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.