HashiCorp, Inc. (NASDAQ:HCP) shares have continued their recent momentum with a 27% gain in the last month alone. Looking further back, the 15% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, HashiCorp may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 11.3x, since almost half of all companies in the Software industry in the United States have P/S ratios under 4.3x and even P/S lower than 1.6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

How Has HashiCorp Performed Recently?

Recent times have been advantageous for HashiCorp 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. However, if this isn't the case, investors might get caught out paying too much for the stock.

Is There Enough Revenue Growth Forecasted For HashiCorp?

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

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. Pleasingly, revenue has also lifted 175% in aggregate from three years ago, thanks to the last 12 months of growth. 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 16% per annum as estimated by the analysts watching the company. With the industry predicted to deliver 15% growth per annum, the company is positioned for a comparable revenue result.

In light of this, it's curious that HashiCorp's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What We Can Learn From HashiCorp's P/S?

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

Analysts are forecasting HashiCorp's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. 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. Unless the company can jump ahead of the rest of the industry in the short-term, it'll be a challenge to maintain the share price at current levels.

You should always think about risks. Case in point, we've spotted 2 warning signs for HashiCorp you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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