With QuinStreet, Inc. (NASDAQ:QNST) It Looks Like You'll Get What You Pay For

QuinStreet, Inc.'s (NASDAQ:QNST) price-to-sales (or "P/S") ratio of 2x 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for QuinStreet

How Has QuinStreet Performed Recently?

Recent times haven't been great for QuinStreet as its revenue has been rising slower than most other companies. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think QuinStreet's future stacks up against the industry? In that case, our free report is a great place to start.

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 QuinStreet's is when the company's growth is on track to outshine the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 5.7% last year. The latest three year period has also seen a 6.1% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 18% each year over the next three years. That's shaping up to be materially higher than the 12% per year growth forecast for the broader industry.

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

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

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.

Our look into QuinStreet shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with QuinStreet.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.