Goosehead Insurance, Inc (NASDAQ:GSHD) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 67% in the last year.

Following the firm bounce in price, you could be forgiven for thinking Goosehead Insurance is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 10.4x, considering almost half the companies in the United States' Insurance industry have P/S ratios below 1.1x. 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 Goosehead Insurance's P/S Mean For Shareholders?

Goosehead Insurance could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. 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 Goosehead Insurance.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as Goosehead Insurance'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 managed to grow revenues by a handy 11% last year. Pleasingly, revenue has also lifted 95% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Looking ahead now, revenue is anticipated to climb by 26% during the coming year according to the nine analysts following the company. With the industry only predicted to deliver 3.9%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Goosehead Insurance's 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 Goosehead Insurance's P/S?

Shares in Goosehead Insurance have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Goosehead Insurance maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Insurance industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Goosehead Insurance that you should be aware of.

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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