Revenues Tell The Story For ACV Auctions Inc. (NASDAQ:ACVA) As Its Stock Soars 25%

ACV Auctions Inc. (NASDAQ:ACVA) shares have had a really impressive month, gaining 25% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 41%.

Following the firm bounce in price, you could be forgiven for thinking ACV Auctions is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.2x, considering almost half the companies in the United States' Commercial Services industry have P/S ratios below 1.5x. 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 ACV Auctions

What Does ACV Auctions' Recent Performance Look Like?

ACV Auctions 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. 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 ACV Auctions will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For ACV Auctions?

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

Retrospectively, the last year delivered an exceptional 29% gain to the company's top line. The latest three year period has also seen an excellent 91% 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 26% per annum during the coming three years according to the analysts following the company. That's shaping up to be materially higher than the 8.4% each year growth forecast for the broader industry.

With this information, we can see why ACV Auctions 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

The strong share price surge has lead to ACV Auctions' P/S soaring as well. 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 ACV Auctions' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

It is also worth noting that we have found 2 warning signs for ACV Auctions that you need to take into consideration.

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