Subdued Growth No Barrier To Vertiv Holdings Co (NYSE:VRT) With Shares Advancing 26%

Vertiv Holdings Co (NYSE:VRT) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 289% following the latest surge, making investors sit up and take notice.

After such a large jump in price, when almost half of the companies in the United States' Electrical industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Vertiv Holdings Co as a stock not worth researching with its 3.6x 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 Vertiv Holdings Co

How Has Vertiv Holdings Co Performed Recently?

Recent times have been advantageous for Vertiv Holdings Co 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.

Want the full picture on analyst estimates for the company? Then our free report on Vertiv Holdings Co will help you uncover what's on the horizon.

How Is Vertiv Holdings Co's Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. The latest three year period has also seen an excellent 57% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 9.5% per annum during the coming three years according to the twelve analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 44% each year, which is noticeably more attractive.

With this information, we find it concerning that Vertiv Holdings Co is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

The strong share price surge has lead to Vertiv Holdings Co's P/S soaring as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

It comes as a surprise to see Vertiv Holdings Co trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

Plus, you should also learn about this 1 warning sign we've spotted with Vertiv Holdings Co.

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.