Market Participants Recognise ExaWizards Inc.'s (TSE:4259) Revenues Pushing Shares 25% Higher

Despite an already strong run, ExaWizards Inc. (TSE:4259) shares have been powering on, with a gain of 25% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 92% in the last year.

After such a large jump in price, you could be forgiven for thinking ExaWizards is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.2x, considering almost half the companies in Japan's IT industry have P/S ratios below 1.2x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for ExaWizards

What Does ExaWizards' P/S Mean For Shareholders?

ExaWizards certainly has been doing a good job lately as it's been growing revenue more than most other companies. 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.

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

Is There Enough Revenue Growth Forecasted For ExaWizards?

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

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. The latest three year period has also seen an excellent 180% 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 two analysts covering the company suggest revenue should grow by 38% per year over the next three years. With the industry only predicted to deliver 6.2% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why ExaWizards is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does ExaWizards' P/S Mean For Investors?

The strong share price surge has lead to ExaWizards' P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that ExaWizards maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the IT industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. 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 ExaWizards 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.