EVgo, Inc.'s (NASDAQ:EVGO) P/S Is On The Mark

When you see that almost half of the companies in the Specialty Retail industry in the United States have price-to-sales ratios (or "P/S") below 0.4x, EVgo, Inc. (NASDAQ:EVGO) looks to be giving off strong sell signals with its 3.3x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for EVgo

What Does EVgo's P/S Mean For Shareholders?

Recent times have been advantageous for EVgo as its revenues have been rising faster than most other companies. 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.

Want the full picture on analyst estimates for the company? Then our free report on EVgo will help you uncover what's on the horizon.

How Is EVgo's Revenue Growth Trending?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like EVgo's to be considered reasonable.

If we review the last year of revenue growth, we see the company's revenues grew exponentially. The amazing performance means it was also able to deliver huge revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 63% per annum as estimated by the twelve analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 6.8% per annum, which is noticeably less attractive.

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

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 EVgo's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 5 warning signs for EVgo you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.