Thinkific Labs Inc.'s (TSE:THNC) 26% Jump Shows Its Popularity With Investors

Thinkific Labs Inc. (TSE:THNC) shares have continued their recent momentum with a 26% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 61%.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Thinkific Labs' P/S ratio of 4.1x, since the median price-to-sales (or "P/S") ratio for the Software industry in Canada is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Thinkific Labs

How Thinkific Labs Has Been Performing

Recent times haven't been great for Thinkific Labs as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Thinkific Labs' Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. The latest three year period has also seen an excellent 172% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 17% per annum as estimated by the seven analysts watching the company. That's shaping up to be similar to the 16% per annum growth forecast for the broader industry.

With this in mind, it makes sense that Thinkific Labs' P/S is closely matching its industry peers. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What We Can Learn From Thinkific Labs' P/S?

Thinkific Labs appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry 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.

A Thinkific Labs' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Software industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Thinkific Labs that you should be aware of.

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.