Investors Appear Satisfied With Amplitude, Inc.'s (NASDAQ:AMPL) Prospects
With a price-to-sales (or "P/S") ratio of 5.6x Amplitude, Inc. (NASDAQ:AMPL) may be sending bearish signals at the moment, given that almost half of all Software companies in the United States have P/S ratios under 4.3x and even P/S lower than 1.9x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
Check out our latest analysis for Amplitude
What Does Amplitude's Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, Amplitude 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 to much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on Amplitude will help you uncover what's on the horizon.
Is There Enough Revenue Growth Forecasted For Amplitude?
In order to justify its P/S ratio, Amplitude would need to produce impressive growth in excess of the industry.
If we review the last year of revenue growth, the company posted a terrific increase of 42%. Pleasingly, revenue has also lifted 248% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 23% per annum 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 Amplitude is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Key Takeaway
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
As we suspected, our examination of Amplitude's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.
Having said that, be aware Amplitude is showing 4 warning signs in our investment analysis, and 1 of those doesn't sit too well with us.
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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