Why Investors Shouldn’t Be Surprised by Wayfair Inc.’s Income Statement (NYSE:W).

With an average price-to-sales ratio (or “P/S”) of nearly 0.4x in the US specialty retail industry, you could be forgiven for feeling indifferent about Wayfair Inc (NYSE:W) P/S ratio of 0.7x. However, investors may overlook a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Wayfair

What does Wayfair’s recent performance look like?

Wayfair could do better, as its revenue has been declining recently, while most other companies have seen positive revenue growth. Perhaps the market expects poor sales performance to improve, keeping the price-to-earnings ratio from falling. You would really hope so, otherwise you would pay a relatively high price for a company with this kind of growth profile.

Want to know how analysts think Wayfair’s future compares to the industry? In that case our free report is a good starting point.

How is Wayfair’s revenue growth trending?

Wayfair’s price-to-earnings ratio would be typical of a company expected to deliver only moderate growth and, more importantly, perform in line with the industry.

If we look at the turnover of the past year, the company achieved a result that hardly differs from a year ago. While it’s an improvement, it wasn’t enough to get the company out of the hole it was in, with overall revenue down 22% from three years ago. Accordingly, shareholders would have felt down about medium-term revenue growth.

Looking ahead, estimates from the analysts covering the company suggest that revenues should grow 5.5% per year over the next three years. With the sector expected to grow at 5.7% per year, the company is positioned for a similar top line performance.

With this information, we can see why Wayfair is trading at a fairly similar P/S to the industry. Apparently shareholders are comfortable just holding on while the company stays in the background.

What can we learn from Wayfair’s P/S?

We normally caution against looking too much at price-to-sales ratios when making investment decisions, although this can reveal a lot about what other market participants think about the company.

Wayfair’s P/S seems about right to us, given that analysts are forecasting revenue prospects similar to those of specialty retail. At this point, shareholders are comfortable with the P/S as they are confident that future earnings will not deliver any surprises. All things being constant, the possibility of a drastic stock price move remains fairly remote.

Moreover, you should also learn more about this 4 warning signs we spotted with Wayfair (including 1 that is a bit concerning).

If you unsure about the strength of Wayfair’s businessWhy not check out our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.