ACV Auctions Inc. (NASDAQ:ACVA) Investors Are Less Pessimistic Than Expected
When you see that almost half of the companies in the Commercial Services industry in the United States have price-to-sales ratios (or "P/S") below 1.3x, ACV Auctions Inc. (NASDAQ:ACVA) looks to be giving off strong sell signals with its 4.5x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for ACV Auctions
How Has ACV Auctions Performed Recently?
Recent revenue growth for ACV Auctions has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. However, if this isn't the case, investors might get caught out paying to much for the stock.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on ACV Auctions.
How Is ACV Auctions' Revenue Growth Trending?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like ACV Auctions' to be considered reasonable.
Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 295% 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.
Looking ahead now, revenue is anticipated to climb by 22% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 92% per year, which is noticeably more attractive.
In light of this, it's alarming that ACV Auctions' P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
What We Can Learn From ACV Auctions' P/S?
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.
Despite analysts forecasting some poorer-than-industry revenue growth figures for ACV Auctions, this doesn't appear to be impacting the P/S in the slightest. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. At these price levels, investors should remain cautious, particularly if things don't improve.
Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for ACV Auctions with six simple checks will allow you to discover any risks that could be an issue.
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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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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