What You Can Learn From WiseTech Global Limited's (ASX:WTC) P/S After Its 25% Share Price Crash

The WiseTech Global Limited (ASX:WTC) share price has softened a substantial 25% over the previous 30 days, handing back much of the gains the stock has made lately. Still, a bad month hasn't completely ruined the past year with the stock gaining 69%, which is great even in a bull market.

Even after such a large drop in price, when almost half of the companies in Australia's Software industry have price-to-sales ratios (or "P/S") below 2.7x, you may still consider WiseTech Global as a stock not worth researching with its 31.6x P/S ratio. 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.

See our latest analysis for WiseTech Global

What Does WiseTech Global's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, WiseTech Global has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. 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 WiseTech Global will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For WiseTech Global?

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

If we review the last year of revenue growth, the company posted a terrific increase of 28%. The strong recent performance means it was also able to grow revenue by 105% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 26% each year as estimated by the analysts watching the company. With the industry only predicted to deliver 20% per annum, the company is positioned for a stronger revenue result.

In light of this, it's understandable that WiseTech Global'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 Does WiseTech Global's P/S Mean For Investors?

Even after such a strong price drop, WiseTech Global's P/S still exceeds the industry median significantly. 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.

As we suspected, our examination of WiseTech Global'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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for WiseTech Global with six simple checks.

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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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.