Marqeta, Inc.'s (NASDAQ:MQ) price-to-sales (or "P/S") ratio of 4x may not look like an appealing investment opportunity when you consider close to half the companies in the Diversified Financial industry in the United States have P/S ratios below 2.4x.   Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.  

NasdaqGS:MQ Price to Sales Ratio vs Industry April 20th 2024

How Has Marqeta Performed Recently?

Marqeta could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth.   It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing.  However, if this isn't the case, investors might get caught out paying too much for the stock.    

Want the full picture on analyst estimates for the company? Then our free report on Marqeta will help you uncover what's on the horizon.  

How Is Marqeta's Revenue Growth Trending?  

The only time you'd be truly comfortable seeing a P/S as high as Marqeta's is when the company's growth is on track to outshine the industry.  

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 9.6%.   Even so, admirably revenue has lifted 133% in aggregate from three years ago, notwithstanding the last 12 months.  Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.  

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 6.2% per year over the next three years.  Meanwhile, the rest of the industry is forecast to expand by 6.3% each year, which is not materially different.

In light of this, it's curious that Marqeta's P/S sits above the majority of other companies.  Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now.  Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.  

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Given Marqeta's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising.  When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term.  This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.    

We don't want to rain on the parade too much, but we did also find 1 warning sign for Marqeta that you need to be mindful of.  

If you're unsure about the strength of Marqeta's 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.