Why Investors Shouldn't Be Surprised By Knightscope, Inc.'s (NASDAQ:KSCP) P/S

When close to half the companies in the Commercial Services industry in the United States have price-to-sales ratios (or "P/S") below 1.2x, you may consider Knightscope, Inc. (NASDAQ:KSCP) as a stock to avoid entirely with its 3.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Knightscope

What Does Knightscope's P/S Mean For Shareholders?

Recent times have been advantageous for Knightscope as its revenues have been rising faster 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.

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

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Knightscope's to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 194% last year. The strong recent performance means it was also able to grow revenue by 298% in total over the last three years. 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 year should generate growth of 37% as estimated by the only analyst watching the company. That's shaping up to be materially higher than the 8.6% growth forecast for the broader industry.

With this in mind, it's not hard to understand why Knightscope's 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 Knightscope's P/S

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.

As we suspected, our examination of Knightscope's 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for Knightscope (2 shouldn't be ignored!) that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.