Clear Secure, Inc.'s (NYSE:YOU) P/S Still Appears To Be Reasonable
You may think that with a price-to-sales (or "P/S") ratio of 5.6x Clear Secure, Inc. (NYSE:YOU) is a stock to potentially avoid, seeing as almost half of all the Software companies in the United States have P/S ratios under 4.4x and even P/S lower than 2x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
See our latest analysis for Clear Secure
How Clear Secure Has Been Performing
With revenue growth that's superior to most other companies of late, Clear Secure has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Clear Secure.
Is There Enough Revenue Growth Forecasted For Clear Secure?
The only time you'd be truly comfortable seeing a P/S as high as Clear Secure's is when the company's growth is on track to outshine the industry.
Taking a look back first, we see that the company grew revenue by an impressive 72% last year. Pleasingly, revenue has also lifted 127% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 19% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 13% per year, which is noticeably less attractive.
With this information, we can see why Clear Secure is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What We Can Learn From Clear Secure's 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.
As we suspected, our examination of Clear Secure'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. It's hard to see the share price falling strongly in the near future under these circumstances.
Having said that, be aware Clear Secure is showing 3 warning signs in our investment analysis, you should know about.
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.
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