TAL Education Group's (NYSE:TAL) P/S Is Still On The Mark Following 28% Share Price Bounce

TAL Education Group (NYSE:TAL) shares have continued their recent momentum with a 28% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 83%.

After such a large jump in price, when almost half of the companies in the United States' Consumer Services industry have price-to-sales ratios (or "P/S") below 1.4x, you may consider TAL Education Group as a stock not worth researching with its 6.5x 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.

See our latest analysis for TAL Education Group

How TAL Education Group Has Been Performing

Recent times haven't been great for TAL Education Group as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on TAL Education Group.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

Retrospectively, the last year delivered a decent 2.9% gain to the company's revenues. Still, lamentably revenue has fallen 67% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 19% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 12% each year, which is noticeably less attractive.

In light of this, it's understandable that TAL Education Group's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does TAL Education Group's P/S Mean For Investors?

Shares in TAL Education Group have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 TAL Education 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.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for TAL Education Group with six simple checks will allow you to discover any risks that could be an issue.

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.