Xometry, Inc.'s (NASDAQ:XMTR) 70% Jump Shows Its Popularity With Investors
Xometry, Inc. (NASDAQ:XMTR) shares have had a really impressive month, gaining 70% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 45% over that time.
Since its price has surged higher, given close to half the companies operating in the United States' Trade Distributors industry have price-to-sales ratios (or "P/S") below 1x, you may consider Xometry as a stock to potentially avoid with its 2.6x 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 Xometry
How Xometry Has Been Performing
Recent times have been advantageous for Xometry as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.
Want the full picture on analyst estimates for the company? Then our free report on Xometry will help you uncover what's on the horizon.
How Is Xometry's Revenue Growth Trending?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Xometry's to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 24% last year. The strong recent performance means it was also able to grow revenue by 207% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Looking ahead now, revenue is anticipated to climb by 26% per year during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 5.6% per year, which is noticeably less attractive.
With this in mind, it's not hard to understand why Xometry'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
Xometry shares have taken a big step in a northerly direction, but its P/S is elevated as a result. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Xometry maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Trade Distributors industry, as expected. 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.
Having said that, be aware Xometry is showing 2 warning signs in our investment analysis, you should know about.
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.
