Origin Materials, Inc. (NASDAQ:ORGN) shareholders have had their patience rewarded with a 42% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 2.1% isn't as impressive.

Since its price has surged higher, you could be forgiven for thinking Origin Materials is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.2x, considering almost half the companies in the United States' Chemicals industry have P/S ratios below 1.4x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Origin Materials' Recent Performance Look Like?

Recent times have been pleasing for Origin Materials as its revenue has risen in spite of the industry's average revenue going into reverse. The P/S ratio is probably high because investors think the company will continue to navigate the broader industry headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

How Is Origin Materials' Revenue Growth Trending?

Origin Materials' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, revenue is anticipated to climb by 72% during the coming year according to the lone analyst following the company. Meanwhile, the rest of the industry is forecast to only expand by 3.7%, which is noticeably less attractive.

In light of this, it's understandable that Origin Materials' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Origin Materials' P/S?

The strong share price surge has lead to Origin Materials' P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Origin Materials maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Chemicals industry, as expected. 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.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Origin Materials (2 are a bit unpleasant!) that you should be aware of before investing here.

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.