Why Investors Shouldn't Be Surprised By Keypath Education International, Inc.'s (ASX:KED) 36% Share Price Surge

Despite an already strong run, Keypath Education International, Inc. (ASX:KED) shares have been powering on, with a gain of 36% in the last thirty days. The last month tops off a massive increase of 207% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Keypath Education International's P/S ratio of 0.9x, since the median price-to-sales (or "P/S") ratio for the Consumer Services industry in Australia is also close to 0.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Keypath Education International

How Keypath Education International Has Been Performing

With revenue growth that's inferior to most other companies of late, Keypath Education International has been relatively sluggish. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Keypath Education International.

How Is Keypath Education International's Revenue Growth Trending?

In order to justify its P/S ratio, Keypath Education International would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 10%. The latest three year period has also seen an excellent 82% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 11% per annum over the next three years. With the industry predicted to deliver 9.4% growth per annum, the company is positioned for a comparable revenue result.

With this information, we can see why Keypath Education International is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Keypath Education International's P/S

Keypath Education International's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 seen that Keypath Education International maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Keypath Education International that you need to be mindful of.

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.