Shopify Inc.'s (NYSE:SHOP) price-to-sales (or "P/S") ratio of 10.2x may look like a poor investment opportunity when you consider close to half the companies in the IT industry in the United States have P/S ratios below 1.8x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
How Has Shopify Performed Recently?
Recent times have been advantageous for Shopify as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Shopify.
What Are Revenue Growth Metrics Telling Us About The High P/S?
The only time you'd be truly comfortable seeing a P/S as steep as Shopify's is when the company's growth is on track to outshine the industry decidedly.
Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 115% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Turning to the outlook, the next three years should generate growth of 21% each year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 12% per annum growth forecast for the broader industry.
In light of this, it's understandable that Shopify's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Key Takeaway
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 Shopify shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Shopify with six simple checks on some of these key factors.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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Shopify Inc. '考慮到美國IT行業將近一半的公司的市銷率低於1.8倍,s(紐約證券交易所代碼:SHOP)市銷率(或 “市盈率”)爲10.2倍可能看起來是一個糟糕的投資機會。但是,僅按面值計算市銷率是不明智的,因爲可以解釋其爲何如此之高。