With Fastly, Inc. (NYSE:FSLY) It Looks Like You'll Get What You Pay For

Fastly, Inc. -0.65%

Fastly, Inc.




When you see that almost half of the companies in the IT industry in the United States have price-to-sales ratios (or "P/S") below 1.7x, Fastly, Inc. (NYSE:FSLY) looks to be giving off strong sell signals with its 4.8x P/S ratio. 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.

See our latest analysis for Fastly

NYSE:FSLY Price to Sales Ratio vs Industry December 30th 2023

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

Fastly certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Fastly will help you uncover what's on the horizon.

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

Fastly'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.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. The strong recent performance means it was also able to grow revenue by 82% in total 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 18% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 14% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why Fastly's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Fastly'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.

Our look into Fastly 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.

Before you settle on your opinion, we've discovered 3 warning signs for Fastly that you should be aware of.

If these risks are making you reconsider your opinion on Fastly, explore our interactive list of high quality stocks to get an idea of what else is out there.

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