Market Participants Recognise Sezzle Inc.'s (NASDAQ:SEZL) Revenues Pushing Shares 38% Higher

Sezzle Inc. (NASDAQ:SEZL) shareholders are no doubt pleased to see that the share price has bounced 38% in the last month, although it is still struggling to make up recently lost ground. The last 30 days were the cherry on top of the stock's 524% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, given around half the companies in the United States' Diversified Financial industry have price-to-sales ratios (or "P/S") below 2.7x, you may consider Sezzle as a stock to avoid entirely with its 7.7x 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 Sezzle

What Does Sezzle's P/S Mean For Shareholders?

Sezzle certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Sezzle?

In order to justify its P/S ratio, Sezzle 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. The latest three year period has also seen an excellent 113% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 40% as estimated by the dual analysts watching the company. That's shaping up to be materially higher than the 6.3% growth forecast for the broader industry.

In light of this, it's understandable that Sezzle's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Sezzle's P/S has grown nicely over the last month thanks to a handy boost in the share price. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Sezzle's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Sezzle (1 shouldn't be ignored!) that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.