When close to half the companies in the Diversified Financial industry in the United States have price-to-sales ratios (or "P/S") below 2.6x, you may consider Flywire Corporation (NASDAQ:FLYW) as a stock to avoid entirely with its 7.6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for Flywire
How Has Flywire Performed Recently?
Recent times haven't been great for Flywire as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
Keen to find out how analysts think Flywire's future stacks up against the industry? In that case, our free report is a great place to start.What Are Revenue Growth Metrics Telling Us About The High P/S?
In order to justify its P/S ratio, Flywire would need to produce outstanding growth that's well in excess of the industry.
Retrospectively, the last year delivered an exceptional 40% gain to the company's top line. Pleasingly, revenue has also lifted 185% 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.
Turning to the outlook, the next three years should generate growth of 28% per annum as estimated by the analysts watching the company. With the industry only predicted to deliver 9.0% each year, the company is positioned for a stronger revenue result.
In light of this, it's understandable that Flywire'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 Flywire's P/S
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.
Our look into Flywire shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
And what about other risks? Every company has them, and we've spotted 2 warning signs for Flywire you should know about.
It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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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.
