The Price Is Right For Rover Group, Inc. (NASDAQ:ROVR)

When close to half the companies in the Consumer Services industry in the United States have price-to-sales ratios (or "P/S") below 1.4x, you may consider Rover Group, Inc. (NASDAQ:ROVR) as a stock to avoid entirely with its 4.9x 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 Rover Group

How Rover Group Has Been Performing

Recent times have been advantageous for Rover Group 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 Rover Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Rover Group's Revenue Growth Trending?

In order to justify its P/S ratio, Rover Group would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 49% gain to the company's top line. Pleasingly, revenue has also lifted 97% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 21% per year over the next three years. With the industry only predicted to deliver 15% per annum, the company is positioned for a stronger revenue result.

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

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 Rover Group'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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

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 Rover Group with six simple checks.

If you're unsure about the strength of Rover Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.