The Price Is Right For Trustpilot Group plc (LON:TRST) Even After Diving 27%

The Trustpilot Group plc (LON:TRST) share price has fared very poorly over the last month, falling by a substantial 27%. Longer-term, the stock has been solid despite a difficult 30 days, gaining 17% in the last year.

Although its price has dipped substantially, when almost half of the companies in the United Kingdom's Interactive Media and Services industry have price-to-sales ratios (or "P/S") below 2x, you may still consider Trustpilot Group as a stock not worth researching with its 5.9x 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.

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Check out our latest analysis for Trustpilot Group

What Does Trustpilot Group's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Trustpilot Group has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. 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 Trustpilot Group will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Trustpilot Group?

The only time you'd be truly comfortable seeing a P/S as steep as Trustpilot Group's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 19% gain to the company's top line. The latest three year period has also seen an excellent 60% 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 nine analysts covering the company suggest revenue should grow by 16% per year over the next three years. That's shaping up to be materially higher than the 8.5% per annum growth forecast for the broader industry.

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

What We Can Learn From Trustpilot Group's P/S?

Even after such a strong price drop, Trustpilot Group's P/S still exceeds the industry median significantly. 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.

As we suspected, our examination of Trustpilot Group's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Trustpilot Group that you should be aware of.

If you're unsure about the strength of Trustpilot Group's 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.