Paycor HCM, Inc.'s (NASDAQ:PYCR) P/S Is Still On The Mark Following 27% Share Price Bounce

The Paycor HCM, Inc. (NASDAQ:PYCR) share price has done very well over the last month, posting an excellent gain of 27%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 12% over that time.

After such a large jump in price, you could be forgiven for thinking Paycor HCM is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 4.8x, considering almost half the companies in the United States' Professional 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.

View our latest analysis for Paycor HCM

How Paycor HCM Has Been Performing

With revenue growth that's superior to most other companies of late, Paycor HCM has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Paycor HCM's Revenue Growth Trending?

Paycor HCM's 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.

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. Pleasingly, revenue has also lifted 85% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 11% per annum as estimated by the analysts watching the company. That's shaping up to be materially higher than the 7.3% each year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Paycor HCM's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

The strong share price surge has lead to Paycor HCM's P/S soaring as well. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Paycor HCM's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Paycor HCM with six simple checks.

If these risks are making you reconsider your opinion on Paycor HCM, 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.