Market Participants Recognise PLAID,Inc.'s (TSE:4165) Revenues Pushing Shares 31% Higher

The PLAID,Inc. (TSE:4165) share price has done very well over the last month, posting an excellent gain of 31%. Looking back a bit further, it's encouraging to see the stock is up 77% in the last year.

Since its price has surged higher, when almost half of the companies in Japan's Software industry have price-to-sales ratios (or "P/S") below 2x, you may consider PLAIDInc as a stock not worth researching with its 4.9x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for PLAIDInc

How Has PLAIDInc Performed Recently?

Recent times have been advantageous for PLAIDInc as its revenues have been rising faster than most other companies. 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.

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

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like PLAIDInc's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 27%. The latest three year period has also seen an excellent 106% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 21% during the coming year according to the sole analyst following the company. With the industry only predicted to deliver 12%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that PLAIDInc's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From PLAIDInc's P/S?

The strong share price surge has lead to PLAIDInc's P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into PLAIDInc shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with PLAIDInc (at least 1 which doesn't sit too well with us), and understanding them should be part of your investment process.

If you're unsure about the strength of PLAIDInc'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.