Thinkific Labs Inc.'s (TSE:THNC) 27% Jump Shows Its Popularity With Investors

Thinkific Labs Inc. (TSE:THNC) shares have continued their recent momentum with a 27% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 79% in the last year.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Thinkific Labs' P/S ratio of 2.9x, since the median price-to-sales (or "P/S") ratio for the Software industry in Canada is also close to 3x. 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.

Check out our latest analysis for Thinkific Labs

How Has Thinkific Labs Performed Recently?

Recent times haven't been great for Thinkific Labs as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. If not, then existing shareholders may 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 Thinkific Labs will help you uncover what's on the horizon.

Is There Some Revenue Growth Forecasted For Thinkific Labs?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Thinkific Labs' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 18% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 172% in total over the last three years. 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 year as estimated by the seven analysts watching the company. With the industry predicted to deliver 17% growth per annum, the company is positioned for a comparable revenue result.

With this information, we can see why Thinkific Labs is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Final Word

Thinkific Labs' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look at Thinkific Labs' revenue growth estimates show that its P/S is about what we expect, as both metrics follow closely with the industry averages. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. If all things remain constant, the possibility of a drastic share price movement remains fairly remote.

Plus, you should also learn about these 3 warning signs we've spotted with Thinkific Labs.

If you're unsure about the strength of Thinkific Labs' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.