Zillow Group, Inc. (NASDAQ:ZG) shares have continued their recent momentum with a 35% gain in the last month alone. The annual gain comes to 107% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in the United States' Real Estate industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider Zillow Group as a stock to avoid entirely with its 8.6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Zillow Group's Recent Performance Look Like?

Zillow Group could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Zillow Group will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Zillow Group's 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 managed to grow revenues by a handy 13% last year. However, this wasn't enough as the latest three year period has seen an unpleasant 9.6% overall drop in revenue. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 14% per year over the next three years. That's shaping up to be materially higher than the 12% per year growth forecast for the broader industry.

In light of this, it's understandable that Zillow Group's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Zillow Group's P/S Mean For Investors?

The strong share price surge has lead to Zillow Group's P/S soaring as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Zillow Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Real Estate 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Zillow Group with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Zillow Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.