After Leaping 65% Lemonade, Inc. (NYSE:LMND) Shares Are Not Flying Under The Radar

Lemonade, Inc. (NYSE:LMND) shares have continued their recent momentum with a 65% gain in the last month alone. The last month tops off a massive increase of 157% in the last year.

After such a large jump in price, you could be forgiven for thinking Lemonade is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.8x, considering almost half the companies in the United States' Insurance industry have P/S ratios below 1.1x. 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.

View our latest analysis for Lemonade

What Does Lemonade's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Lemonade has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Lemonade's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Lemonade's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 22%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest revenue should grow by 30% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 5.2% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Lemonade's 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.

What We Can Learn From Lemonade's P/S?

Shares in Lemonade have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Lemonade's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Lemonade 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.