Why Investors Shouldn't Be Surprised By Luminar Technologies, Inc.'s (NASDAQ:LAZR) P/S

When close to half the companies in the Auto Components industry in the United States have price-to-sales ratios (or "P/S") below 0.7x, you may consider Luminar Technologies, Inc. (NASDAQ:LAZR) as a stock to avoid entirely with its 2.9x 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 Luminar Technologies

How Luminar Technologies Has Been Performing

With its revenue growth in positive territory compared to the declining revenue of most other companies, Luminar Technologies has been doing quite well of late. It seems that many are expecting the company to continue defying the broader industry adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Luminar Technologies.

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Luminar Technologies would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 28% gain to the company's top line. The latest three year period has also seen an excellent 241% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 109% per annum during the coming three years according to the six analysts following the company. With the industry only predicted to deliver 42% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why Luminar Technologies is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

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.

As we suspected, our examination of Luminar Technologies' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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 6 warning signs for Luminar Technologies (1 doesn't sit too well with us) you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.