What You Can Learn From CrowdStrike Holdings, Inc.'s (NASDAQ:CRWD) P/S

You may think that with a price-to-sales (or "P/S") ratio of 21.5x CrowdStrike Holdings, Inc. (NASDAQ:CRWD) is a stock to avoid completely, seeing as almost half of all the Software companies in the United States have P/S ratios under 4.5x and even P/S lower than 1.8x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for CrowdStrike Holdings

What Does CrowdStrike Holdings' P/S Mean For Shareholders?

Recent times have been advantageous for CrowdStrike Holdings 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. 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 CrowdStrike Holdings.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, CrowdStrike Holdings 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 40% last year. The strong recent performance means it was also able to grow revenue by 274% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 30% each year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 17% each year growth forecast for the broader industry.

With this information, we can see why CrowdStrike Holdings 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 Does CrowdStrike Holdings' P/S Mean For Investors?

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.

We've established that CrowdStrike Holdings maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for CrowdStrike Holdings that 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.