Gogo Inc.'s (NASDAQ:GOGO) 42% Jump Shows Its Popularity With Investors

The Gogo Inc. (NASDAQ:GOGO) share price has done very well over the last month, posting an excellent gain of 42%. Unfortunately, despite the strong performance over the last month, the full year gain of 3.8% isn't as attractive.

Since its price has surged higher, given close to half the companies operating in the United States' Wireless Telecom industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Gogo as a stock to potentially avoid with its 2.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

We've discovered 1 warning sign about Gogo. View them for free.

See our latest analysis for Gogo

How Has Gogo Performed Recently?

With revenue growth that's superior to most other companies of late, Gogo has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Gogo'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 outperform the industry for P/S ratios like Gogo's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 42% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 61% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 61% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 5.5%, which is noticeably less attractive.

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

The Final Word

Gogo's P/S is on the rise since its shares have risen strongly. 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.

As we suspected, our examination of Gogo'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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Gogo that you need to be mindful of.

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.