When close to half the companies in the Auto Components industry in the United States have price-to-sales ratios (or "P/S") below 0.7x, you may consider Luminar Technologies, Inc. (NASDAQ:LAZR) as a stock to avoid entirely with its 44.9x 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.
How Has Luminar Technologies Performed Recently?
Luminar Technologies certainly has been doing a good job lately as it's been growing revenue more than most other companies. 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 too much for the stock.
Keen to find out how analysts think Luminar Technologies' future stacks up against the industry? In that case, our free report is a great place to start.
What Are Revenue Growth Metrics Telling Us About The High P/S?
The only time you'd be truly comfortable seeing a P/S as steep as Luminar Technologies' is when the company's growth is on track to outshine the industry decidedly.
Taking a look back first, we see that the company grew revenue by an impressive 47% last year. The strong recent performance means it was also able to grow revenue by 238% 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.
Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 148% per year over the next three years. That's shaping up to be materially higher than the 16% per annum growth forecast for the broader industry.
With this in mind, it's not hard to understand why Luminar Technologies' 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 Does Luminar Technologies' P/S Mean For Investors?
Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
Our look into Luminar Technologies shows that its P/S ratio remains high on the merit of its strong future revenues. 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.
Before you settle on your opinion, we've discovered 4 warning signs for Luminar Technologies that 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.
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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.