Market Participants Recognise White Mountains Insurance Group, Ltd.'s (NYSE:WTM) Revenues

When you see that almost half of the companies in the Insurance industry in the United States have price-to-sales ratios (or "P/S") below 1x, White Mountains Insurance Group, Ltd. (NYSE:WTM) looks to be giving off some sell signals with its 1.9x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for White Mountains Insurance Group

What Does White Mountains Insurance Group's P/S Mean For Shareholders?

With revenue growth that's exceedingly strong of late, White Mountains Insurance Group has been doing very well. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Although there are no analyst estimates available for White Mountains Insurance Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is White Mountains Insurance Group's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as White Mountains Insurance Group's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company grew revenue by an impressive 90% last year. Pleasingly, revenue has also lifted 124% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 6.4% over the next year, materially lower than the company's recent medium-term annualised growth rates.

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

The Bottom Line On White Mountains Insurance Group's P/S

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.

It's no surprise that White Mountains Insurance Group can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. At this stage investors feel the potential continued revenue growth in the future is great enough to warrant an inflated P/S. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for White Mountains Insurance Group 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).

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

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.