Investors Appear Satisfied With Kits Eyecare Ltd.'s (TSE:KITS) Prospects As Shares Rocket 34%

Kits Eyecare Ltd. (TSE:KITS) shareholders have had their patience rewarded with a 34% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 87% in the last year.

Since its price has surged higher, you could be forgiven for thinking Kits Eyecare is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.3x, considering almost half the companies in Canada's Specialty Retail industry have P/S ratios below 1.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Kits Eyecare

What Does Kits Eyecare's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Kits Eyecare 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.

Keen to find out how analysts think Kits Eyecare's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as high as Kits Eyecare's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 93% 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 22% per annum as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 7.9% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Kits Eyecare's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Kits Eyecare shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

Our look into Kits Eyecare shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Kits Eyecare with six simple checks on some of these key factors.

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