OPENLANE, Inc. (NYSE:KAR) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 39%.

Although its price has surged higher, it's still not a stretch to say that OPENLANE's price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" compared to the Commercial Services industry in the United States, where the median P/S ratio is around 1.5x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

What Does OPENLANE's P/S Mean For Shareholders?

OPENLANE could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is moderate because investors think this lacklustre revenue performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

How Is OPENLANE's Revenue Growth Trending?

In order to justify its P/S ratio, OPENLANE would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 3.8%. This was backed up an excellent period prior to see revenue up by 122% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 4.6% over the next year. With the industry predicted to deliver 8.7% growth, the company is positioned for a weaker revenue result.

In light of this, it's curious that OPENLANE's P/S sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does OPENLANE's P/S Mean For Investors?

OPENLANE appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look at the analysts forecasts of OPENLANE's revenue prospects has shown that its inferior revenue outlook isn't negatively impacting its P/S as much as we would have predicted. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 1 warning sign for OPENLANE that 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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