Stock Analysis

Market Participants Recognise Grindr Inc.'s (NYSE:GRND) Revenues Pushing Shares 25% Higher

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Grindr Inc. (NYSE:GRND) shares have had a really impressive month, gaining 25% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 63% in the last year.

After such a large jump in price, when almost half of the companies in the United States' Interactive Media and Services industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider Grindr as a stock not worth researching with its 6.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Grindr

NYSE:GRND Price to Sales Ratio vs Industry April 1st 2024

How Grindr Has Been Performing

With revenue growth that's superior to most other companies of late, Grindr has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. 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 Grindr's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Grindr's Revenue Growth Trending?

In order to justify its P/S ratio, Grindr would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 33% gain to the company's top line. The latest three year period has also seen an excellent 149% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the only analyst covering the company suggest revenue should grow by 17% per annum 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 information, we can see why Grindr is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has lead to Grindr's P/S soaring as well. 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 Grindr 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. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Grindr that you should be aware of.

If you're unsure about the strength of Grindr's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Valuation is complex, but we're helping make it simple.

Find out whether Grindr is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.