Revenues Tell The Story For Goosehead Insurance, Inc (NASDAQ:GSHD) As Its Stock Soars 31%

Goosehead Insurance, Inc (NASDAQ:GSHD) shares have continued their recent momentum with a 31% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 61% in the last year.

Since its price has surged higher, given around half the companies in the United States' Insurance industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider Goosehead Insurance as a stock to avoid entirely with its 10.2x 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 Goosehead Insurance

How Goosehead Insurance Has Been Performing

With revenue growth that's inferior to most other companies of late, Goosehead Insurance has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Keen to find out how analysts think Goosehead Insurance's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Goosehead Insurance's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 11% last year. Pleasingly, revenue has also lifted 95% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Turning to the outlook, the next year should generate growth of 26% as estimated by the eight analysts watching the company. With the industry only predicted to deliver 4.2%, the company is positioned for a stronger revenue result.

With this information, we can see why Goosehead Insurance is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Goosehead Insurance's P/S?

The strong share price surge has lead to Goosehead Insurance's P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Goosehead Insurance shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Goosehead Insurance that you need to be mindful of.

If you're unsure about the strength of Goosehead Insurance'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.