Pinning Down Marqeta, Inc.'s (NASDAQ:MQ) P/S Is Difficult Right Now

When close to half the companies in the Diversified Financial industry in the United States have price-to-sales ratios (or "P/S") below 2.6x, you may consider Marqeta, Inc. (NASDAQ:MQ) as a stock to avoid entirely with its 4.9x 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 Marqeta

How Has Marqeta Performed Recently?

Marqeta could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. 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 Marqeta will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Marqeta?

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

Retrospectively, the last year delivered a decent 8.8% gain to the company's revenues. Pleasingly, revenue has also lifted 162% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 0.3% per annum over the next three years. That's shaping up to be materially lower than the 6.3% per annum growth forecast for the broader industry.

With this in consideration, we believe it doesn't make sense that Marqeta's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Final Word

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.

It comes as a surprise to see Marqeta trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

It is also worth noting that we have found 1 warning sign for Marqeta that you need to take into consideration.

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.