Why Investors Shouldn't Be Surprised By Ouster, Inc.'s (NYSE:OUST) 26% Share Price Surge

Those holding Ouster, Inc. (NYSE:OUST) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last 30 days bring the annual gain to a very sharp 91%.

Since its price has surged higher, when almost half of the companies in the United States' Electronic industry have price-to-sales ratios (or "P/S") below 2.1x, you may consider Ouster as a stock probably not worth researching with its 3.8x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for Ouster

How Ouster Has Been Performing

Recent times have been advantageous for Ouster as its revenues have been rising faster 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 Ouster will help you uncover what's on the horizon.

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 69% last year. Pleasingly, revenue has also lifted 279% 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 50% each year as estimated by the three analysts watching the company. With the industry only predicted to deliver 10% per annum, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Ouster'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.

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

The large bounce in Ouster's shares has lifted the company's P/S handsomely. 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.

We've established that Ouster maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electronic industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 3 warning signs for Ouster that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.