After Leaping 26% GitLab Inc. (NASDAQ:GTLB) Shares Are Not Flying Under The Radar

Despite an already strong run, GitLab Inc. (NASDAQ:GTLB) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 42%.

After such a large jump in price, GitLab may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 16.1x, when you consider almost half of the companies in the Software industry in the United States have P/S ratios under 5.3x and even P/S lower than 1.9x 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.

Check out our latest analysis for GitLab

What Does GitLab's Recent Performance Look Like?

GitLab 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. 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 GitLab.

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 32% gain to the company's top line. Pleasingly, revenue has also lifted 239% in aggregate from three years ago, thanks to the last 12 months of growth. 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 23% per year as estimated by the analysts watching the company. With the industry only predicted to deliver 21% per annum, the company is positioned for a stronger revenue result.

In light of this, it's understandable that GitLab's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Shares in GitLab have seen a strong upwards swing lately, which has really helped boost its P/S figure. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into GitLab shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with GitLab.

If these risks are making you reconsider your opinion on GitLab, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.