Stocks with the Largest Price to Sales (P/S) Declines
It’s no secret that there has been a massive pullback in valuation multiples, and stocks that had higher multiples have been hit much harder by the recent market pullback. This comes as rate hikes increase the discount rate and the era of “free money” comes to an end, which inherently lowers the risk appetite of investors. The chart below shows the price to sales (P/S) spread between the Russell 1000 growth index and the Russell 1000 value index. Naturally, growth stocks should always trade at higher multiples, but the spread became magnified throughout the pandemic. The spread peaked in mid-November 2021 at 3.7, but it has contracted by 1.8 points to 1.9 as of today’s open. Whereas the growth index has seen its P/S ratio decline by 36.4%, the value index has only seen a P/S decline of 13.0%. The growth index currently has a P/S ratio of 3.6, compared to 1.7 for the value index. The P/S spread between the two indices is now inline with pre-COVID levels, so the stretched growth multiples of the pandemic-era have come full circle. Click here to learn more about Bespoke’s premium stock market research service.
Dissecting this further, we took a look at the 20 Russell 1000 stocks that have seen their P/S multiples compress the most since their respective 52-week highs. Leading this group is Lucid (LCID), which has seen the P/S ratio decline by a whopping 275,309 points. This comes as sales increased substantially and the price declined significantly (-68.2% since the 52-week high). Even still, LCID’s P/S ratio remains in the stratosphere at 359. Next on this list is Norwegian Cruise (NCLH) and Carnival (CCL), which have experienced a similar phenomenon. Sales fell off a cliff for the cruise lines following COVID, causing their P/S ratios to spike. As sales have returned on the re-opening and share prices have continued to decline, P/S ratios have fallen significantly. The largest decliners in share price since their respective 52-week highs on this list are Upstart (UPST), DocuSign (DOCU) and Unity Software (U), which have declined by 90.4%, 79.0% and 78.9%, respectively. Upstart has seen its P/S ratio fall from 37.8 down to 3.0. The median stock on this list trades 10.8 times LTM sales, which is still aggressive to say the least. Most stocks topped out either last summer or in October/November.
The six month price charts below are available using our Chart Scanner tool. You can click here to view a custom portfolio of these twenty stocks if you’re already a subscriber. As you can see, the vast majority are in sustained downtrends. However, if interest rate pressures subside and risk appetites increase, these twenty names could benefit through multiple expansion. Click here to learn more about Bespoke’s premium stock market research service.