Audinate Group Limited's (ASX:AD8) Share Price Matching Investor Opinion

When close to half the companies in the Electronic industry in Australia have price-to-sales ratios (or "P/S") below 1.5x, you may consider Audinate Group Limited (ASX:AD8) as a stock to avoid entirely with its 18.5x 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.

Check out our latest analysis for Audinate Group

How Has Audinate Group Performed Recently?

With revenue growth that's superior to most other companies of late, Audinate Group 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.

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

How Is Audinate Group's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 51% gain to the company's top line. The latest three year period has also seen an excellent 130% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 24% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 14% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Audinate 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.

The Final Word

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Audinate Group shows that its P/S ratio remains high on the merit of its strong future revenues. 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.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Audinate Group (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Audinate Group, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.