Hanesbrands Inc.'s (NYSE:HBI) 27% Dip Still Leaving Some Shareholders Feeling Restless Over Its P/SRatio

Unfortunately for some shareholders, the Hanesbrands Inc. (NYSE:HBI) share price has dived 27% in the last thirty days, prolonging recent pain. Longer-term shareholders would now have taken a real hit with the stock declining 8.3% in the last year.

In spite of the heavy fall in price, there still wouldn't be many who think Hanesbrands' price-to-sales (or "P/S") ratio of 0.4x is worth a mention when the median P/S in the United States' Luxury industry is similar at about 0.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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See our latest analysis for Hanesbrands

What Does Hanesbrands' P/S Mean For Shareholders?

Hanesbrands could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

How Is Hanesbrands' Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 4.0%. This means it has also seen a slide in revenue over the longer-term as revenue is down 48% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue growth is heading into negative territory, declining 0.1% per annum over the next three years. Meanwhile, the broader industry is forecast to expand by 6.1% per year, which paints a poor picture.

With this information, we find it concerning that Hanesbrands is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does Hanesbrands' P/S Mean For Investors?

Hanesbrands' plummeting stock price has brought its P/S back to a similar region as the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It appears that Hanesbrands currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If the poor revenue outlook tells us one thing, it's that these current price levels could be unsustainable.

Before you take the next step, you should know about the 1 warning sign for Hanesbrands that we have uncovered.

If you're unsure about the strength of Hanesbrands' 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.