ACV Auctions Inc.'s (NASDAQ:ACVA) Share Price Matching Investor Opinion

When close to half the companies in the Commercial Services industry in the United States have price-to-sales ratios (or "P/S") below 1.3x, you may consider ACV Auctions Inc. (NASDAQ:ACVA) as a stock to avoid entirely with its 5.8x P/S ratio. 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.

View our latest analysis for ACV Auctions

How ACV Auctions Has Been Performing

Recent times have been advantageous for ACV Auctions as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think ACV Auctions' future stacks up against the industry? In that case, our free report is a great place to start.

How Is ACV Auctions' Revenue Growth Trending?

ACV Auctions' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 16%. The latest three year period has also seen an excellent 116% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 30% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 21% per annum, which is noticeably less attractive.

In light of this, it's understandable that ACV Auctions' 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.

What Does ACV Auctions' P/S Mean For Investors?

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.

We've established that ACV Auctions maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Commercial Services industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for ACV Auctions that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.