Despite an already strong run, Ouster, Inc. (NYSE:OUST) shares have been powering on, with a gain of 55% in the last thirty days. The annual gain comes to 151% following the latest surge, making investors sit up and take notice.

After such a large jump in price, when almost half of the companies in the United States' Electronic industry have price-to-sales ratios (or "P/S") below 2x, you may consider Ouster as a stock not worth researching with its 7.9x 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 Ouster's P/S Mean For Shareholders?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Ouster has been doing quite well of late. It seems that many are expecting the company to continue defying the broader industry adversity, which has increased investors' willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Ouster'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.

If we review the last year of revenue growth, the company posted a terrific increase of 85%. Pleasingly, revenue has also lifted 296% in aggregate from three years ago, 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 58% per annum during the coming three years according to the six analysts following the company. That's shaping up to be materially higher than the 10% per year growth forecast for the broader industry.

With this information, we can see why Ouster is trading at such a high P/S compared to the industry. 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 strong share price surge has lead to Ouster's P/S soaring as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Ouster's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 3 warning signs for Ouster you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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