Intersport Polska S.A.'s (WSE:IPO) Popularity With Investors Is Under Threat From Overpricing

With a median price-to-sales (or "P/S") ratio of close to 0.7x in the Specialty Retail industry in Poland, you could be forgiven for feeling indifferent about Intersport Polska S.A.'s (WSE:IPO) P/S ratio of 0.3x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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View our latest analysis for Intersport Polska

How Has Intersport Polska Performed Recently?

For instance, Intersport Polska's receding revenue in recent times would have to be some food for thought. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Intersport Polska's earnings, revenue and cash flow.

How Is Intersport Polska's Revenue Growth Trending?

In order to justify its P/S ratio, Intersport Polska would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 7.6% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 28% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 17% shows it's an unpleasant look.

In light of this, it's somewhat alarming that Intersport Polska's P/S sits in line with the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the recent negative growth rates.

What We Can Learn From Intersport Polska's P/S?

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 find it unexpected that Intersport Polska trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve markedly, investors will have a hard time accepting the share price as fair value.

You need to take note of risks, for example - Intersport Polska has 4 warning signs (and 3 which can't be ignored) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.