P10, Inc.'s (NYSE:PX) price-to-sales (or "P/S") ratio of 4.3x may not look like an appealing investment opportunity when you consider close to half the companies in the Capital Markets industry in the United States have P/S ratios below 2.9x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

How P10 Has Been Performing

P10 certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is P10's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as high as P10's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an exceptional 28% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 9.5% as estimated by the six analysts watching the company. With the industry predicted to deliver 10% growth , the company is positioned for a comparable revenue result.

In light of this, it's curious that P10's P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

The Bottom Line On P10's P/S

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.

Given P10's future revenue forecasts are in line with the wider industry, the fact that it trades at an elevated P/S is somewhat surprising. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

There are also other vital risk factors to consider and we've discovered 2 warning signs for P10 (1 shouldn't be ignored!) that you should be aware of before investing here.

If you're unsure about the strength of P10'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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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.