Temple & Webster Group Ltd (ASX:TPW) Looks Just Right With A 40% Price Jump

Despite an already strong run, Temple & Webster Group Ltd (ASX:TPW) shares have been powering on, with a gain of 40% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 55% in the last year.

Since its price has surged higher, when almost half of the companies in Australia's Specialty Retail industry have price-to-sales ratios (or "P/S") below 0.8x, you may consider Temple & Webster Group as a stock not worth researching with its 3.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Temple & Webster Group

How Has Temple & Webster Group Performed Recently?

Recent times have been advantageous for Temple & Webster Group as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Temple & Webster Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Temple & Webster Group's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 26%. Pleasingly, revenue has also lifted 39% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 20% per year as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 5.8% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Temple & Webster Group'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.

What Does Temple & Webster Group's P/S Mean For Investors?

The strong share price surge has lead to Temple & Webster 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.

As we suspected, our examination of Temple & Webster Group'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. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for Temple & Webster Group that you need to take into consideration.

If you're unsure about the strength of Temple & Webster Group'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.