What You Can Learn From Eventbrite, Inc.'s (NYSE:EB) P/S
Eventbrite, Inc.'s (NYSE:EB) price-to-sales (or "P/S") ratio of 3.1x may not look like an appealing investment opportunity when you consider close to half the companies in the Interactive Media and Services industry in the United States have P/S ratios below 1.6x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
View our latest analysis for Eventbrite
How Has Eventbrite Performed Recently?
With revenue growth that's superior to most other companies of late, Eventbrite has been doing relatively well. 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 to much for the stock.
Want the full picture on analyst estimates for the company? Then our free report on Eventbrite will help you uncover what's on the horizon.
How Is Eventbrite's Revenue Growth Trending?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Eventbrite's to be considered reasonable.
Retrospectively, the last year delivered an exceptional 39% gain to the company's top line. However, this wasn't enough as the latest three year period has seen the company endure a nasty 20% drop in revenue in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 10% per annum growth forecast for the broader industry.
With this information, we can see why Eventbrite 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.
What We Can Learn From Eventbrite's P/S?
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 Eventbrite 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 these conditions change, they will continue to provide strong support to the share price.
You should always think about risks. Case in point, we've spotted 1 warning sign for Eventbrite 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.
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