Yahoo Finance The Price Is Right For Samsara Inc. (NYSE:IOT)
You may think that with a price-to-sales (or "P/S") ratio of 14.6x Samsara Inc. (NYSE:IOT) is a stock to avoid completely, seeing as almost half of all the Software companies in the United States have P/S ratios under 4.2x and even P/S lower than 1.8x aren't out of the ordinary. 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.
Check out our latest analysis for Samsara
What Does Samsara's Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, Samsara has been doing relatively well. 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.
Keen to find out how analysts think Samsara's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Samsara's Revenue Growth Trending?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Samsara's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 53% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 28% each year during the coming three years according to the twelve analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 13% per annum, which is noticeably less attractive.
With this in mind, it's not hard to understand why Samsara's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
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.
Our look into Samsara 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
Plus, you should also learn about these 3 warning signs we've spotted with Samsara.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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