Investors Appear Satisfied With EverQuote, Inc.'s (NASDAQ:EVER) Prospects

EverQuote, Inc.'s (NASDAQ:EVER) price-to-sales (or "P/S") ratio of 2.3x may not look like an appealing investment opportunity when you consider close to half the companies in the Interactive Media and Services industry in the United States have P/S ratios below 1.3x. 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.

See our latest analysis for EverQuote

What Does EverQuote's Recent Performance Look Like?

While the industry has experienced revenue growth lately, EverQuote's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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.

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

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

Retrospectively, the last year delivered a frustrating 14% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 19% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the nine analysts covering the company suggest revenue should grow by 23% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 12% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why EverQuote's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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.

We've established that EverQuote maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Interactive Media and Services 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.

Before you take the next step, you should know about the 1 warning sign for EverQuote that we have uncovered.

If these risks are making you reconsider your opinion on EverQuote, 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.