Ceridian HCM Holding Inc.'s (NYSE:CDAY) P/S Is On The Mark
When you see that almost half of the companies in the Professional Services industry in the United States have price-to-sales ratios (or "P/S") below 1.3x, Ceridian HCM Holding Inc. (NYSE:CDAY) looks to be giving off strong sell signals with its 7.9x P/S ratio. 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 Ceridian HCM Holding
What Does Ceridian HCM Holding's Recent Performance Look Like?
Recent times have been advantageous for Ceridian HCM Holding as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on Ceridian HCM Holding will help you uncover what's on the horizon.
How Is Ceridian HCM Holding's Revenue Growth Trending?
In order to justify its P/S ratio, Ceridian HCM Holding would need to produce outstanding growth that's well in excess of the industry.
Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. The latest three year period has also seen an excellent 57% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next three years should generate growth of 17% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 9.1% per year, which is noticeably less attractive.
With this in mind, it's not hard to understand why Ceridian HCM Holding'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.
What We Can Learn From Ceridian HCM Holding's P/S?
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.
As we suspected, our examination of Ceridian HCM Holding's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
Before you settle on your opinion, we've discovered 2 warning signs for Ceridian HCM Holding that you should be aware of.
If you're unsure about the strength of Ceridian HCM Holding's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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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