Market Participants Recognise Audinate Group Limited's (ASX:AD8) Revenues
When you see that almost half of the companies in the Electronic industry in Australia have price-to-sales ratios (or "P/S") below 1.9x, Audinate Group Limited (ASX:AD8) looks to be giving off strong sell signals with its 12.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
Check out our latest analysis for Audinate Group
How Audinate Group Has Been Performing
With revenue growth that's superior to most other companies of late, Audinate Group 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.
Keen to find out how analysts think Audinate Group's future stacks up against the industry? In that case, our free report is a great place to start.
Is There Enough Revenue Growth Forecasted For Audinate Group?
The only time you'd be truly comfortable seeing a P/S as steep as Audinate Group's is when the company's growth is on track to outshine the industry decidedly.
Retrospectively, the last year delivered an exceptional 49% gain to the company's top line. Pleasingly, revenue has also lifted 88% 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 five analysts covering the company suggest revenue should grow by 24% over the next year. With the industry only predicted to deliver 13%, the company is positioned for a stronger revenue result.
With this in mind, it's not hard to understand why Audinate Group's 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.
The Final Word
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.
As we suspected, our examination of Audinate Group'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. Unless these conditions change, they will continue to provide strong support to the share price.
Before you take the next step, you should know about the 1 warning sign for Audinate Group that we have uncovered.
If these risks are making you reconsider your opinion on Audinate Group, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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