Cellebrite DI Ltd.'s (NASDAQ:CLBT) P/S Is Still On The Mark Following 28% Share Price Bounce

Despite an already strong run, Cellebrite DI Ltd. (NASDAQ:CLBT) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 106% in the last year.

Since its price has surged higher, Cellebrite DI may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 7.2x, since almost half of all companies in the Software industry in the United States have P/S ratios under 4.3x and even P/S lower than 1.6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

View our latest analysis for Cellebrite DI

What Does Cellebrite DI's P/S Mean For Shareholders?

Recent times have been advantageous for Cellebrite DI 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

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 Cellebrite DI's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 20%. Pleasingly, revenue has also lifted 67% in aggregate from three years ago, thanks to the last 12 months of growth. 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 17% per year during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 15% each year growth forecast for the broader industry.

In light of this, it's understandable that Cellebrite DI'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 Bottom Line On Cellebrite DI's P/S

Cellebrite DI's P/S has grown nicely over the last month thanks to a handy boost in the share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Cellebrite DI maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Cellebrite DI, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Cellebrite DI, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.