VinFast Auto Ltd.'s (NASDAQ:VFS) price-to-sales (or "P/S") ratio of 7.3x may look like a poor investment opportunity when you consider close to half the companies in the Auto industry in the United States have P/S ratios below 1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

How Has VinFast Auto Performed Recently?

With revenue growth that's superior to most other companies of late, VinFast Auto 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.

How Is VinFast Auto's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as VinFast Auto's 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 65% last year. The strong recent performance means it was also able to grow revenue by 132% in total 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 73% each year during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 16% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why VinFast Auto's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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 VinFast Auto maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Auto industry, as expected. 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.

Before you take the next step, you should know about the 3 warning signs for VinFast Auto (2 are a bit unpleasant!) that we have uncovered.

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.