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Hesai Group's (NASDAQ:HSAI) price-to-sales (or "P/S") ratio of 5.8x may look like a poor investment opportunity when you consider close to half the companies in the Auto Components industry in the United States have P/S ratios below 0.7x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
See our latest analysis for Hesai Group
How Hesai Group Has Been Performing
With revenue growth that's superior to most other companies of late, Hesai Group has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Hesai Group.
What Are Revenue Growth Metrics Telling Us About The High P/S?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like Hesai Group's to be considered reasonable.
Taking a look back first, we see that the company grew revenue by an impressive 64% last year. 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.
Looking ahead now, revenue is anticipated to climb by 55% during the coming year according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 13%, which is noticeably less attractive.
In light of this, it's understandable that Hesai Group'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.
What We Can Learn From Hesai Group'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.
We've established that Hesai Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Auto Components industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.
Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Hesai Group with six simple checks on some of these key factors.