KinderCare Learning Companies, Inc. (NYSE:KLC) shareholders that were waiting for something to happen have been dealt a blow with a 38% share price drop in the last month. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.
Following the heavy fall in price, when close to half the companies operating in the United States' Consumer Services industry have price-to-sales ratios (or "P/S") above 1.4x, you may consider KinderCare Learning Companies as an enticing stock to check out with its 0.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.
View our latest analysis for KinderCare Learning Companies
What Does KinderCare Learning Companies' Recent Performance Look Like?
Recent times haven't been great for KinderCare Learning Companies as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. 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.
Keen to find out how analysts think KinderCare Learning Companies' future stacks up against the industry? In that case, our free report is a great place to start .How Is KinderCare Learning Companies' Revenue Growth Trending?
In order to justify its P/S ratio, KinderCare Learning Companies would need to produce sluggish growth that's trailing the industry.
Retrospectively, the last year delivered a decent 6.1% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 47% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.
Turning to the outlook, the next three years should generate growth of 5.0% per annum as estimated by the seven analysts watching the company. With the industry predicted to deliver 13% growth per annum, the company is positioned for a weaker revenue result.
In light of this, it's understandable that KinderCare Learning Companies' P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.
The Bottom Line On KinderCare Learning Companies' P/S
KinderCare Learning Companies' recently weak share price has pulled its P/S back below other Consumer Services companies. 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.
We've established that KinderCare Learning Companies maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for KinderCare Learning Companies that you should be aware of.
If you're unsure about the strength of KinderCare Learning Companies' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.