Warby Parker Inc. (NYSE:WRBY) shareholders would be excited to see that the share price has had a great month, posting a 38% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 2.2% over the last year.

After such a large jump in price, you could be forgiven for thinking Warby Parker is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 3.7x, considering almost half the companies in the United States' Specialty Retail industry have P/S ratios below 0.5x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Warby Parker's P/S Mean For Shareholders?

Recent times have been advantageous for Warby Parker as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Warby Parker's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Warby Parker's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 15%. This was backed up an excellent period prior to see revenue up by 46% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 19% each year over the next three years. That's shaping up to be materially higher than the 7.6% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Warby Parker's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in Warby Parker have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our look into Warby Parker shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Warby Parker has 3 warning signs we think you should be aware of.

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.