Why Investors Shouldn't Be Surprised By WiseTech Global Limited's (ASX:WTC) 27% Share Price Surge

The WiseTech Global Limited (ASX:WTC) share price has done very well over the last month, posting an excellent gain of 27%. The last 30 days bring the annual gain to a very sharp 71%.

Since its price has surged higher, given around half the companies in Australia's Software industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider WiseTech Global as a stock to avoid entirely with its 37.8x 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.

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. If not, then existing shareholders might 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 WiseTech Global.

How Is WiseTech Global's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like WiseTech Global's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 28% last year. The latest three year period has also seen an excellent 105% overall rise in revenue, aided by its short-term performance. 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% per year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 21% each year growth forecast for the broader industry.

With this information, we can see why WiseTech Global 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.

What We Can Learn From WiseTech Global's P/S?

The strong share price surge has lead to WiseTech Global's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that WiseTech Global maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

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

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.