Market Participants Recognise Iris Energy Limited's (NASDAQ:IREN) Revenues Pushing Shares 136% Higher

The Iris Energy Limited (NASDAQ:IREN) share price has done very well over the last month, posting an excellent gain of 136%. This latest share price bounce rounds out a remarkable 603% gain over the last twelve months.

After such a large jump in price, Iris Energy may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 8.4x, since almost half of all companies in the Software industry in the United States have P/S ratios under 4.5x and even P/S lower than 1.8x are not unusual. 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 Iris Energy

What Does Iris Energy's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Iris Energy has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. 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 Iris Energy.

Is There Enough Revenue Growth Forecasted For Iris Energy?

The only time you'd be truly comfortable seeing a P/S as steep as Iris Energy's is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a terrific increase of 28%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 55% each year over the next three years. With the industry only predicted to deliver 17% per annum, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Iris Energy'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

Iris Energy's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Iris Energy 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.

Before you settle on your opinion, we've discovered 3 warning signs for Iris Energy (2 can't be ignored!) that you should be aware of.

If these risks are making you reconsider your opinion on Iris Energy, 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.