Revenues Tell The Story For HUB24 Limited (ASX:HUB) As Its Stock Soars 25%

HUB24 Limited (ASX:HUB) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 119% in the last year.

After such a large jump in price, HUB24 may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 22.7x, since almost half of all companies in the Capital Markets industry in Australia have P/S ratios under 5.2x and even P/S lower than 2x are not unusual. 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.

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See our latest analysis for HUB24

What Does HUB24's P/S Mean For Shareholders?

Recent times have been advantageous for HUB24 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.

Want the full picture on analyst estimates for the company? Then our free report on HUB24 will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For HUB24?

In order to justify its P/S ratio, HUB24 would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. The strong recent performance means it was also able to grow revenue by 156% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 6.3% per annum, which is noticeably less attractive.

With this information, we can see why HUB24 is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The strong share price surge has lead to HUB24's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of HUB24's 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. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for HUB24 with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of HUB24's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.