Why Investors Shouldn't Be Surprised By Deliveroo plc's (LON:ROO) P/S

There wouldn't be many who think Deliveroo plc's (LON:ROO) price-to-sales (or "P/S") ratio of 0.9x is worth a mention when the median P/S for the Hospitality industry in the United Kingdom is very similar. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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How Has Deliveroo Performed Recently?

With revenue growth that's inferior to most other companies of late, Deliveroo has been relatively sluggish. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Deliveroo will help you uncover what's on the horizon.

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Still, the latest three year period was better as it's delivered a decent 19% overall rise in revenue. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 7.1% per year during the coming three years according to the analysts following the company. With the industry predicted to deliver 7.2% growth per year, the company is positioned for a comparable revenue result.

In light of this, it's understandable that Deliveroo's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look at Deliveroo's revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Deliveroo with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Deliveroo, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.