Revenues Tell The Story For Goosehead Insurance, Inc (NASDAQ:GSHD)
When close to half the companies in the Insurance industry in the United States have price-to-sales ratios (or "P/S") below 0.9x, you may consider Goosehead Insurance, Inc (NASDAQ:GSHD) as a stock to avoid entirely with its 6.6x 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.
View our latest analysis for Goosehead Insurance
How Goosehead Insurance Has Been Performing
Recent times have been advantageous for Goosehead Insurance as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Want the full picture on analyst estimates for the company? Then our free report on Goosehead Insurance will help you uncover what's on the horizon.
Do Revenue Forecasts Match The High P/S Ratio?
In order to justify its P/S ratio, Goosehead Insurance would need to produce outstanding growth that's well in excess of the industry.
Taking a look back first, we see that the company grew revenue by an impressive 40% last year. Pleasingly, revenue has also lifted 203% 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.
Looking ahead now, revenue is anticipated to climb by 30% per annum during the coming three years according to the six analysts following the company. With the industry only predicted to deliver 3.2% each year, the company is positioned for a stronger revenue result.
With this in mind, it's not hard to understand why Goosehead Insurance's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Bottom Line On Goosehead Insurance's P/S
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.
Our look into Goosehead Insurance 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 4 warning signs for Goosehead Insurance you should be aware of, and 1 of them is a bit unpleasant.
If you're unsure about the strength of Goosehead Insurance's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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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