What You Can Learn From Intuitive Machines, Inc.'s (NASDAQ:LUNR) P/S

Intuitive Machines, Inc.'s (NASDAQ:LUNR) price-to-sales (or "P/S") ratio of 8.8x may look like a poor investment opportunity when you consider close to half the companies in the Aerospace & Defense industry in the United States have P/S ratios below 2.4x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Intuitive Machines

What Does Intuitive Machines' Recent Performance Look Like?

Intuitive Machines certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

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

Taking a look back first, we see that the company grew revenue by an impressive 135% last year. The strong recent performance means it was also able to grow revenue by 181% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 27% per annum over the next three years. With the industry only predicted to deliver 8.3% each year, the company is positioned for a stronger revenue result.

With this information, we can see why Intuitive Machines 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 Key Takeaway

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.

We've established that Intuitive Machines 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.

You should always think about risks. Case in point, we've spotted 4 warning signs for Intuitive Machines you should be aware of, and 1 of them makes us a bit uncomfortable.

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