Revenues Tell The Story For Roblox Corporation (NYSE:RBLX) As Its Stock Soars 26%

Explore Roblox's Fair Values from the Community and select yours

Roblox Corporation (NYSE:RBLX) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 258% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, when almost half of the companies in the United States' Entertainment industry have price-to-sales ratios (or "P/S") below 1.5x, you may consider Roblox as a stock not worth researching with its 22.5x 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.

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Check out our latest analysis for Roblox

How Has Roblox Performed Recently?

Recent times have been advantageous for Roblox as its revenues have been rising faster than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Roblox.

Is There Enough Revenue Growth Forecasted For Roblox?

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

Taking a look back first, we see that the company grew revenue by an impressive 27% last year. The latest three year period has also seen an excellent 82% 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 analysts covering the company suggest revenue should grow by 33% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 13% per year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Roblox's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Roblox's P/S Mean For Investors?

Roblox's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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.

As we suspected, our examination of Roblox's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Roblox, and understanding these should be part of your investment process.

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.