With a price-to-sales (or "P/S") ratio of 13x CyberArk Software Ltd. (NASDAQ:CYBR) may be sending very bearish signals at the moment, given that almost half of all the Software companies in the United States have P/S ratios under 4.5x and even P/S lower than 1.8x are not unusual.   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.  

See our latest analysis for CyberArk Software

NasdaqGS:CYBR Price to Sales Ratio vs Industry December 28th 2023

What Does CyberArk Software's P/S Mean For Shareholders?

CyberArk Software certainly has been doing a good job lately as it's been growing revenue more than most other companies.   The P/S is probably high because investors think this strong revenue performance will continue.  However, if this isn't the case, investors might get caught out paying too much for the stock.    

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

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

In order to justify its P/S ratio, CyberArk Software would need to produce outstanding growth that's well in excess of the industry.  

If we review the last year of revenue growth, the company posted a terrific increase of 22%.   The strong recent performance means it was also able to grow revenue by 55% in total over the last three years.  Therefore, it's fair to say the revenue growth recently has been superb for the company.  

Looking ahead now, revenue is anticipated to climb by 24% per annum during the coming three years according to the analysts following the company.  That's shaping up to be materially higher than the 17% per year growth forecast for the broader industry.

With this information, we can see why CyberArk Software is trading at such a high P/S compared to the industry.  Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.  

The Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that CyberArk Software maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected.  Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat.  It's hard to see the share price falling strongly in the near future under these circumstances.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for CyberArk Software that you need to be mindful of.  

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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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.