Wix.com Ltd. (NASDAQ:WIX) Stocks Shoot Up 44% But Its P/S Still Looks Reasonable

Wix.com Ltd. (NASDAQ:WIX) shares have had a really impressive month, gaining 44% after a shaky period beforehand. The annual gain comes to 134% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in the United States' IT industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider Wix.com as a stock to avoid entirely with its 6x 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 so lofty.

Check out our latest analysis for Wix.com

How Has Wix.com Performed Recently?

With revenue growth that's superior to most other companies of late, Wix.com has been doing relatively well. 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 Wix.com will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Wix.com's 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.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. Pleasingly, revenue has also lifted 49% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the analysts following the company. That's shaping up to be materially higher than the 8.4% growth forecast for the broader industry.

With this information, we can see why Wix.com is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Wix.com's P/S?

Wix.com's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Wix.com's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 3 warning signs for Wix.com that we have uncovered.

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.