There's Reason For Concern Over Zeta Global Holdings Corp.'s (NYSE:ZETA) Massive 27% Price Jump

Despite an already strong run, Zeta Global Holdings Corp. (NYSE:ZETA) shares have been powering on, with a gain of 27% in the last thirty days. The annual gain comes to 263% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Zeta Global Holdings' price-to-sales (or "P/S") ratio of 8.9x might make it look like a strong sell right now compared to other companies in the Software industry in the United States, where around half of the companies have P/S ratios below 4.7x and even P/S below 2x 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 Zeta Global Holdings

What Does Zeta Global Holdings' P/S Mean For Shareholders?

Zeta Global Holdings certainly has been doing a good job lately as it's been growing revenue more than most other companies. 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.

Want the full picture on analyst estimates for the company? Then our free report on Zeta Global Holdings will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

Zeta Global Holdings' 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.

If we review the last year of revenue growth, the company posted a terrific increase of 25%. The strong recent performance means it was also able to grow revenue by 97% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the twelve analysts following the company. That's shaping up to be similar to the 24% growth forecast for the broader industry.

In light of this, it's curious that Zeta Global Holdings' P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Key Takeaway

Zeta Global Holdings' P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Seeing as its revenues are forecast to grow in line with the wider industry, it would appear that Zeta Global Holdings currently trades on a higher than expected P/S. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about this 1 warning sign we've spotted with Zeta Global Holdings.

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.