Market Participants Recognise Samsara Inc.'s (NYSE:IOT) Revenues

Samsara Inc.'s (NYSE:IOT) price-to-sales (or "P/S") ratio of 26.8x 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 5.1x and even P/S below 1.8x 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.

See our latest analysis for Samsara

How Has Samsara Performed Recently?

Samsara certainly has been doing a good job lately as it's been growing revenue more 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.

Keen to find out how analysts think Samsara's future stacks up against the industry? In that case, our free report is a great place to start.

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

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

Retrospectively, the last year delivered an exceptional 40% gain to the company's top line. Pleasingly, revenue has also lifted 189% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 26% per annum during the coming three years according to the analysts following the company. With the industry only predicted to deliver 20% per annum, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Samsara's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

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 Samsara 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 take the next step, you should know about the 3 warning signs for Samsara 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.

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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.