A Piece Of The Puzzle Missing From Nuvei Corporation's (TSE:NVEI) 26% Share Price Climb

Nuvei Corporation (TSE:NVEI) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 40% in the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Nuvei's P/S ratio of 2.4x, since the median price-to-sales (or "P/S") ratio for the Diversified Financial industry in Canada is also close to 2.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Nuvei

How Nuvei Has Been Performing

With revenue growth that's superior to most other companies of late, Nuvei has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Nuvei would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 30%. The strong recent performance means it was also able to grow revenue by 221% 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.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 23% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 1.1%, which is noticeably less attractive.

With this information, we find it interesting that Nuvei is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now Nuvei's P/S is back within range of the industry median. 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.

Looking at Nuvei's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Nuvei that you should be aware of.

If these risks are making you reconsider your opinion on Nuvei, 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.