To the annoyance of some shareholders, The Real Good Food Company, Inc. (NASDAQ:RGF) shares are down a considerable 27% in the last month, which continues a horrid run for the company. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 79% loss during that time.
Following the heavy fall in price, when close to half the companies operating in the United States' Food industry have price-to-sales ratios (or "P/S") above 0.8x, you may consider Real Good Food Company as an enticing stock to check out with its 0.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.
NasdaqGM:RGF Price to Sales Ratio vs Industry February 1st 2024
How Real Good Food Company Has Been Performing
Real Good Food Company certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Real Good Food Company.
Is There Any Revenue Growth Forecasted For Real Good Food Company?
The only time you'd be truly comfortable seeing a P/S as low as Real Good Food Company's is when the company's growth is on track to lag the industry.
Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
Turning to the outlook, the next year should generate growth of 48% as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 1.4% growth forecast for the broader industry.
With this information, we find it odd that Real Good Food Company is trading at a P/S lower than the industry. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
The Bottom Line On Real Good Food Company's P/S
Real Good Food Company's P/S has taken a dip along with its share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
To us, it seems Real Good Food Company currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.
We don't want to rain on the parade too much, but we did also find 6 warning signs for Real Good Food Company (1 makes us a bit uncomfortable!) that you need to be mindful of.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.