Investors Interested In Samsara Inc.'s (NYSE:IOT) Revenues

Samsara Inc.'s (NYSE:IOT) price-to-sales (or "P/S") ratio of 22.1x might make it look like a strong sell right now compared to the Software industry in the United States, where around half of the companies have P/S ratios below 4.4x and even P/S below 1.6x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Samsara

What Does Samsara's P/S Mean For Shareholders?

Recent times have been advantageous for Samsara 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. 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 Samsara.

Is There Enough Revenue Growth Forecasted For Samsara?

In order to justify its P/S ratio, Samsara 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 43% last year. The latest three year period has also seen an excellent 275% overall rise in revenue, aided by its 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 analysts covering the company suggest revenue should grow by 26% per annum over the next three years. With the industry only predicted to deliver 15% per year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Samsara's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

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 Samsara's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Samsara you should be aware of.

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