Integral Ad Science Holding Corp.'s (NASDAQ:IAS) Share Price Matching Investor Opinion
When close to half the companies in the Media industry in the United States have price-to-sales ratios (or "P/S") below 0.9x, you may consider Integral Ad Science Holding Corp. (NASDAQ:IAS) as a stock to avoid entirely with its 5.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
See our latest analysis for Integral Ad Science Holding
What Does Integral Ad Science Holding's Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, Integral Ad Science Holding has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. 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 Integral Ad Science Holding.
What Are Revenue Growth Metrics Telling Us About The High P/S?
Integral Ad Science Holding's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
Retrospectively, the last year delivered an exceptional 26% gain to the company's top line. The latest three year period has also seen an excellent 91% 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.
Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 16% each year over the next three years. With the industry only predicted to deliver 3.5% per year, the company is positioned for a stronger revenue result.
In light of this, it's understandable that Integral Ad Science Holding's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Key Takeaway
Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Our look into Integral Ad Science Holding shows that its P/S ratio remains high on the merit of its strong future revenues. 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.
You should always think about risks. Case in point, we've spotted 1 warning sign for Integral Ad Science Holding you should be aware of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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