Rumble Inc.’s (NASDAQ:RUM) price-to-sales (or “P/S”) ratio of 23.2x may look like a poor investment opportunity when you consider close to half the companies in the Interactive Media and Services industry in the United States have P/S ratios below 1.4x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it’s justified.
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What Does Rumble’s Recent Performance Look Like?
Rumble 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.
If you’d like to see what analysts are forecasting going forward, you should check out our free report on Rumble.
Is There Enough Revenue Growth Forecasted For Rumble?
Rumble’s P/S ratio would be typical for a company that’s expected to deliver very strong growth, and importantly, perform much better than the industry.
Retrospectively, the last year delivered an exceptional 32% gain to the company’s top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it’s fair to say the revenue growth recently has been superb for the company.
Turning to the outlook, the next three years should generate growth of 23% per annum as estimated by the three analysts watching the company. That’s shaping up to be materially higher than the 13% per annum growth forecast for the broader industry.
In light of this, it’s understandable that Rumble’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 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.
Our look into Rumble 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.
We don’t want to rain on the parade too much, but we did also find 2 warning signs for Rumble that you need to be mindful of.
Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
