IREN Limited's (NASDAQ:IREN) P/S Is Still On The Mark Following 30% Share Price Bounce

Despite an already strong run, IREN Limited (NASDAQ:IREN) shares have been powering on, with a gain of 30% in the last thirty days. The last month tops off a massive increase of 132% in the last year.

Following the firm bounce in price, IREN may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 14.3x, when you consider almost half of the companies in the Software industry in the United States have P/S ratios under 5.7x and even P/S lower than 2x 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.

Check out our latest analysis for IREN

How IREN Has Been Performing

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. 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 IREN.

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

IREN's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 120% last year. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the ten analysts covering the company suggest revenue should grow by 94% per year over the next three years. That's shaping up to be materially higher than the 20% per annum growth forecast for the broader industry.

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. 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.

We've established that IREN 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. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for IREN (2 are significant!) that you need to take into consideration.

If you're unsure about the strength of IREN's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.