Despite an already strong run, Grab Holdings Limited (NASDAQ:GRAB) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days bring the annual gain to a very sharp 64%.
Since its price has surged higher, you could be forgiven for thinking Grab Holdings is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 7.8x, considering almost half the companies in the United States' Transportation industry have P/S ratios below 1.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.
How Grab Holdings Has Been Performing
Recent times have been advantageous for Grab Holdings as its revenues have been rising faster than most other companies. 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.
Keen to find out how analysts think Grab Holdings' future stacks up against the industry? In that case, our free report is a great place to start.How Is Grab Holdings' Revenue Growth Trending?
The only time you'd be truly comfortable seeing a P/S as steep as Grab Holdings' is when the company's growth is on track to outshine the industry decidedly.
Taking a look back first, we see that the company grew revenue by an impressive 22% last year. The latest three year period has also seen an excellent 259% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.
Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 21% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 8.8% each year, which is noticeably less attractive.
With this in mind, it's not hard to understand why Grab Holdings' 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 Key Takeaway
The strong share price surge has lead to Grab Holdings' P/S soaring as well. 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.
As we suspected, our examination of Grab Holdings' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
It is also worth noting that we have found 1 warning sign for Grab Holdings that you need to take into consideration.
If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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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.
