After Leaping 45% Worksport Ltd. (NASDAQ:WKSP) Shares Are Not Flying Under The Radar

The Worksport Ltd. (NASDAQ:WKSP) share price has done very well over the last month, posting an excellent gain of 45%. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 36% in the last twelve months.

Following the firm bounce in price, you could be forgiven for thinking Worksport is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2.4x, considering almost half the companies in the United States' Auto Components industry have P/S ratios below 0.7x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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View our latest analysis for Worksport

What Does Worksport's P/S Mean For Shareholders?

Recent times have been advantageous for Worksport as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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How Is Worksport's Revenue Growth Trending?

In order to justify its P/S ratio, Worksport would need to produce impressive growth in excess of the industry.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 150% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 8.2%, which is noticeably less attractive.

With this information, we can see why Worksport 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.

The Final Word

Worksport's P/S is on the rise since its shares have risen strongly. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Worksport'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.

You need to take note of risks, for example - Worksport has 4 warning signs (and 1 which is potentially serious) we think you should know about.

If these risks are making you reconsider your opinion on Worksport, 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.