AvidXchange Holdings, Inc.'s (NASDAQ:AVDX) Earnings Haven't Escaped The Attention Of Investors

AvidXchange Holdings, Inc.'s (NASDAQ:AVDX) price-to-sales (or "P/S") ratio of 6.4x may look like a poor investment opportunity when you consider close to half the companies in the Diversified Financial industry in the United States have P/S ratios below 2.5x. 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 AvidXchange Holdings

What Does AvidXchange Holdings' P/S Mean For Shareholders?

There hasn't been much to differentiate AvidXchange Holdings' and the industry's revenue growth lately. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on AvidXchange Holdings will help you uncover what's on the horizon.

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

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

Retrospectively, the last year delivered an exceptional 20% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 105% 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.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 17% per annum over the next three years. With the industry only predicted to deliver 6.3% each year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why AvidXchange Holdings' 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 Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that AvidXchange Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Diversified Financial industry, as expected. 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.

You always need to take note of risks, for example - AvidXchange Holdings has 2 warning signs we think you should be aware of.

If you're unsure about the strength of AvidXchange Holdings' 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.