Investors Appear Satisfied With Hippo Holdings Inc.'s (NYSE:HIPO) Prospects As Shares Rocket 26%

Hippo Holdings Inc. (NYSE:HIPO) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Taking a wider view, although not as strong as the last month, the full year gain of 11% is also fairly reasonable.

Following the firm bounce in price, when almost half of the companies in the United States' Insurance industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider Hippo Holdings as a stock probably not worth researching with its 1.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Hippo Holdings

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

With revenue growth that's superior to most other companies of late, Hippo Holdings has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

In order to justify its P/S ratio, Hippo Holdings would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 89%. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 26% per year as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 4.7% per annum growth forecast for the broader industry.

In light of this, it's understandable that Hippo Holdings' 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 We Can Learn From Hippo Holdings' P/S?

The large bounce in Hippo Holdings' shares has lifted the company's P/S handsomely. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Hippo Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Insurance 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 should always think about risks. Case in point, we've spotted 3 warning signs for Hippo Holdings you should be aware of.

If these risks are making you reconsider your opinion on Hippo Holdings, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com