The loanDepot, Inc. (NYSE:LDI) share price has fared very poorly over the last month, falling by a substantial 27%. Still, a bad month hasn't completely ruined the past year with the stock gaining 29%, which is great even in a bull market.

After such a large drop in price, loanDepot's price-to-sales (or "P/S") ratio of 0.4x might make it look like a strong buy right now compared to the wider Diversified Financial industry in the United States, where around half of the companies have P/S ratios above 2.4x and even P/S above 5x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

What Does loanDepot's Recent Performance Look Like?

There hasn't been much to differentiate loanDepot's and the industry's revenue growth lately. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on loanDepot.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as depressed as loanDepot's is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Still, lamentably revenue has fallen 33% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 29% during the coming year according to the five analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 6.6%, which is noticeably less attractive.

With this information, we find it odd that loanDepot 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.

What We Can Learn From loanDepot's P/S?

Having almost fallen off a cliff, loanDepot's share price has pulled its P/S way down as well. 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.

A look at loanDepot's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. 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. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You should always think about risks.

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.

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.