NerdWallet, Inc. (NASDAQ:NRDS) shares have continued their recent momentum with a 28% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 50%.
Since its price has surged higher, when almost half of the companies in the United States' Consumer Finance industry have price-to-sales ratios (or "P/S") below 0.9x, you may consider NerdWallet as a stock probably not worth researching with its 1.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
See our latest analysis for NerdWallet
How Has NerdWallet Performed Recently?
With revenue growth that's superior to most other companies of late, NerdWallet has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
How Is NerdWallet's Revenue Growth Trending?
In order to justify its P/S ratio, NerdWallet would need to produce impressive growth in excess of the industry.
Retrospectively, the last year delivered an exceptional 22% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 148% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.
Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 7.0% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 13% per annum, which is noticeably more attractive.
With this in consideration, we believe it doesn't make sense that NerdWallet's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.
The Bottom Line On NerdWallet's P/S
NerdWallet shares have taken a big step in a northerly direction, but its P/S is elevated as a result. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Despite analysts forecasting some poorer-than-industry revenue growth figures for NerdWallet, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
It is also worth noting that we have found 2 warning signs for NerdWallet that you need to take into consideration.
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.
