Revenues Tell The Story For Grid Dynamics Holdings, Inc. (NASDAQ:GDYN) As Its Stock Soars 26%
Grid Dynamics Holdings, Inc. (NASDAQ:GDYN) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 14% in the last twelve months.
Since its price has surged higher, given close to half the companies operating in the United States' IT industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Grid Dynamics Holdings as a stock to potentially avoid with its 3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
See our latest analysis for Grid Dynamics Holdings
What Does Grid Dynamics Holdings' Recent Performance Look Like?
With revenue growth that's superior to most other companies of late, Grid Dynamics Holdings has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Grid Dynamics Holdings.
How Is Grid Dynamics Holdings' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as high as Grid Dynamics Holdings' is when the company's growth is on track to outshine the industry.
Taking a look back first, we see that the company grew revenue by an impressive 47% last year. Pleasingly, revenue has also lifted 162% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 20% each year as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 14% per annum growth forecast for the broader industry.
With this information, we can see why Grid Dynamics Holdings 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 Final Word
Grid Dynamics Holdings' P/S is on the rise since its shares have risen strongly. 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 Grid Dynamics Holdings 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.
There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Grid Dynamics Holdings 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.
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