Investors Appear Satisfied With IREN Limited's (NASDAQ:IREN) Prospects As Shares Rocket 60%

Despite an already strong run, IREN Limited (NASDAQ:IREN) shares have been powering on, with a gain of 60% in the last thirty days. The last 30 days were the cherry on top of the stock's 540% gain in the last year, which is nothing short of spectacular.

After such a large jump in price, IREN may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 33.2x, when you consider almost half of the companies in the Software industry in the United States have P/S ratios under 5x and even P/S lower than 2x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit.

Check out our latest analysis for IREN

How Has IREN Performed Recently?

Recent times have been advantageous for IREN 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is IREN's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 168%. This great performance means it was also able to deliver immense 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 37% per year, which is noticeably less attractive.

In light of this, it's understandable that IREN'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.

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

The strong share price surge has lead to IREN's P/S soaring as well. 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 IREN'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. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 4 warning signs for IREN (2 make us uncomfortable!) that we have uncovered.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.