Roblox Corporation's (NYSE:RBLX) P/S Still Appears To Be Reasonable

When close to half the companies in the Entertainment industry in the United States have price-to-sales ratios (or "P/S") below 1.2x, you may consider Roblox Corporation (NYSE:RBLX) as a stock to avoid entirely with its 10.8x 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.

See our latest analysis for Roblox

How Roblox Has Been Performing

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. 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 Roblox will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Roblox?

Roblox's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. Pleasingly, revenue has also lifted 240% in aggregate from three years ago, thanks to the last 12 months of growth. 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 23% per year over the next three years. With the industry only predicted to deliver 9.9% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why Roblox 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.

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

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Roblox maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Entertainment 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Roblox you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.