Market Participants Recognise EHang Holdings Limited's (NASDAQ:EH) Revenues Pushing Shares 43% Higher

EHang Holdings Limited (NASDAQ:EH) shares have continued their recent momentum with a 43% gain in the last month alone. The last month tops off a massive increase of 112% in the last year.

Following the firm bounce in price, when almost half of the companies in the United States' Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 2.2x, you may consider EHang Holdings as a stock not worth researching with its 31.4x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for EHang Holdings

How EHang Holdings Has Been Performing

With revenue growth that's superior to most other companies of late, EHang Holdings has been doing relatively well. 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.

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

How Is EHang Holdings' Revenue Growth Trending?

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

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The latest three year period has also seen an excellent 239% overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 63% per year as estimated by the nine analysts watching the company. With the industry only predicted to deliver 7.7% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why EHang Holdings' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On EHang Holdings' P/S

EHang Holdings' P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that EHang Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Aerospace & Defense industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for EHang Holdings that you need to be mindful of.

If you're unsure about the strength of EHang Holdings' 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.