EverQuote, Inc. (NASDAQ:EVER) Stocks Shoot Up 34% But Its P/S Still Looks Reasonable

EverQuote, Inc. (NASDAQ:EVER) shares have continued their recent momentum with a 34% gain in the last month alone. The annual gain comes to 271% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, you could be forgiven for thinking EverQuote is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.3x, considering almost half the companies in the United States' Interactive Media and Services industry have P/S ratios below 1.5x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for EverQuote

What Does EverQuote's Recent Performance Look Like?

EverQuote hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For EverQuote?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 33%. The last three years don't look nice either as the company has shrunk revenue by 27% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 24% per year over the next three years. That's shaping up to be materially higher than the 12% each year growth forecast for the broader industry.

In light of this, it's understandable that EverQuote's 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 Bottom Line On EverQuote's P/S

EverQuote shares have taken a big step in a northerly direction, but its P/S is elevated as a result. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into EverQuote shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for EverQuote that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.