Investors Appear Satisfied With Rivian Automotive, Inc.'s (NASDAQ:RIVN) Prospects As Shares Rocket 28%

Rivian Automotive, Inc. (NASDAQ:RIVN) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 34% in the last year.

Since its price has surged higher, you could be forgiven for thinking Rivian Automotive is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 3.4x, considering almost half the companies in the United States' Auto industry have P/S ratios below 0.8x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

We've discovered 2 warning signs about Rivian Automotive. View them for free.

See our latest analysis for Rivian Automotive

How Rivian Automotive Has Been Performing

There hasn't been much to differentiate Rivian Automotive's and the industry's revenue growth lately. It might be that many expect the mediocre revenue performance to strengthen positively, which has kept the P/S ratio from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Despite the lack of growth, the company was still able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it has slowed to such an extent.

Looking ahead now, revenue is anticipated to climb by 40% each year during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 17% per annum growth forecast for the broader industry.

In light of this, it's understandable that Rivian Automotive'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.

The Bottom Line On Rivian Automotive's P/S

The strong share price surge has lead to Rivian Automotive's P/S soaring as well. 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 Rivian Automotive'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 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 2 warning signs for Rivian Automotive that you need to be mindful of.

If these risks are making you reconsider your opinion on Rivian Automotive, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.