ikeGPS Group Limited's (NZSE:IKE) 49% Jump Shows Its Popularity With Investors

The ikeGPS Group Limited (NZSE:IKE) share price has done very well over the last month, posting an excellent gain of 49%. Looking back a bit further, it's encouraging to see the stock is up 49% in the last year.

Since its price has surged higher, when almost half of the companies in New Zealand's Electronic industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider ikeGPS Group as a stock not worth researching with its 5.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for ikeGPS Group

What Does ikeGPS Group's Recent Performance Look Like?

While the industry has experienced revenue growth lately, ikeGPS Group's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 12%. Still, the latest three year period has seen an excellent 114% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 38% over the next year. That's shaping up to be materially higher than the 23% growth forecast for the broader industry.

With this in mind, it's not hard to understand why ikeGPS 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 Does ikeGPS Group's P/S Mean For Investors?

Shares in ikeGPS Group have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of ikeGPS Group's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 4 warning signs for ikeGPS Group (1 shouldn't be ignored!) that you need to be mindful of.

If you're unsure about the strength of ikeGPS 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.