Despite an already strong run, Mobileye Global Inc. (NASDAQ:MBLY) shares have been powering on, with a gain of 27% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 29% over that time.

Since its price has surged higher, given around half the companies in the United States' Auto Components industry have price-to-sales ratios (or "P/S") below 0.7x, you may consider Mobileye Global as a stock to avoid entirely with its 9.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

What Does Mobileye Global's Recent Performance Look Like?

Recent times haven't been great for Mobileye Global as its revenue has been falling quicker than most other companies. It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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 Mobileye Global's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 10% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 30% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 19% each year over the next three years. With the industry predicted to deliver 46% growth each year, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Mobileye Global is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Mobileye Global's P/S

Mobileye Global'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.

We've concluded that Mobileye Global currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Mobileye Global with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Mobileye Global'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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