Investors Interested In NVIDIA Corporation's (NASDAQ:NVDA) Revenues

You may think that with a price-to-sales (or "P/S") ratio of 39.2x NVIDIA Corporation (NASDAQ:NVDA) is a stock to avoid completely, seeing as almost half of all the Semiconductor companies in the United States have P/S ratios under 4.2x and even P/S lower than 1.7x aren't out of the ordinary. 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 NVIDIA

How Has NVIDIA Performed Recently?

NVIDIA certainly has been doing a good job lately as it's been growing revenue more 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.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 208% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 36% per year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 28% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why NVIDIA'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 Key Takeaway

While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Our look into NVIDIA shows that its P/S ratio remains high on the merit of its strong future revenues. 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.

Plus, you should also learn about this 1 warning sign we've spotted with NVIDIA.

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.