LanzaTech Global, Inc.'s (NASDAQ:LNZA) price-to-sales (or "P/S") ratio of 12.8x may look like a poor investment opportunity when you consider close to half the companies in the Commercial Services industry in the United States have P/S ratios below 1.2x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

What Does LanzaTech Global's Recent Performance Look Like?

Recent times have been advantageous for LanzaTech Global as its revenues have been rising faster 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.

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

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

Retrospectively, the last year delivered an exceptional 63% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 193% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 98% each year over the next three years. With the industry only predicted to deliver 19% each year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why LanzaTech Global's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of LanzaTech Global's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for LanzaTech Global with six simple checks on some of these key factors.

If you're unsure about the strength of LanzaTech 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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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.