Ouster, Inc. (NASDAQ:OUST) Looks Just Right With A 34% Price Jump

Ouster, Inc. (NASDAQ:OUST) shares have continued their recent momentum with a 34% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 78%.

Since its price has surged higher, you could be forgiven for thinking Ouster is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5.8x, considering almost half the companies in the United States' Electronic industry have P/S ratios below 2.2x. 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 Ouster

How Has Ouster Performed Recently?

Recent times have been advantageous for Ouster 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. 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 Ouster.

Is There Enough Revenue Growth Forecasted For Ouster?

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

Retrospectively, the last year delivered an exceptional 51% gain to the company's top line. Pleasingly, revenue has also lifted 275% 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.

Turning to the outlook, the next three years should generate growth of 40% per annum as estimated by the four analysts watching the company. With the industry only predicted to deliver 12% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Ouster's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Ouster's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Ouster'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. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Ouster you should know about.

If you're unsure about the strength of Ouster'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.