Aspen Aerogels, Inc. (NYSE:ASPN) Looks Just Right With A 53% Price Jump

Aspen Aerogels, Inc. (NYSE:ASPN) shares have had a really impressive month, gaining 53% after a shaky period beforehand. The last month tops off a massive increase of 123% in the last year.

After such a large jump in price, when almost half of the companies in the United States' Chemicals industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Aspen Aerogels as a stock not worth researching with its 5.5x 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.

Check out our latest analysis for Aspen Aerogels

How Aspen Aerogels Has Been Performing

Aspen Aerogels certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Aspen Aerogels will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Aspen Aerogels' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. Pleasingly, revenue has also lifted 138% 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.

Looking ahead now, revenue is anticipated to climb by 52% each year during the coming three years according to the ten analysts following the company. With the industry only predicted to deliver 8.0% each year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Aspen Aerogels' 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.

The Final Word

Shares in Aspen Aerogels have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 Aspen Aerogels maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Chemicals industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Aspen Aerogels that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.