Grab Holdings Limited's (NASDAQ:GRAB) price-to-sales (or "P/S") ratio of 5.4x may look like a poor investment opportunity when you consider close to half the companies in the Transportation industry in the United States have P/S ratios below 0.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
What Does Grab Holdings' P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, Grab Holdings 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 too much for the stock.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Grab Holdings.
How Is Grab Holdings' Revenue Growth Trending?
In order to justify its P/S ratio, Grab Holdings 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 110% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. 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 18% each year during the coming three years according to the analysts following the company. With the industry only predicted to deliver 11% each year, the company is positioned for a stronger revenue result.
With this information, we can see why Grab 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 Bottom Line On Grab Holdings' 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 Grab Holdings 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.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Grab Holdings with six simple checks on some of these key factors.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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.