Spotify Technology SA (NYSE:SPOT) is clearly popular with investors

We find that nearly half of the companies in the U.S. entertainment industry have a price-to-sales (or “P/S”) ratio of less than 1.3x. Spotify Technology SA (NYSE:SPOT) appears to be giving off a strong sell signal with a P/S multiple of 4x. However, there may be an explanation as to why P/S is so lofty, so it would be unwise to take it at face value.

Check out our latest analysis on Spotify Technology.

Spotify technology performance

Spotify Technology has grown its revenue faster than most other companies, and it's certainly been doing a good job lately. The market seems to expect this pattern to continue in the future, thus increasing the P/S ratio. If this isn't the case, existing shareholders might be a little worried about the viability of the share price.

Want to know how analysts think the future of Spotify technology compares to the industry? free Reports are a great place to start.

Are revenue projections consistent with high returns?

Spotify Technology's P/S ratio is typical of a company that is expected to experience very strong growth and, importantly, outperform its industry.

First, looking back, we can see that the company managed to grow its revenue by 14% in the last year. His most recent three-year period also saw an impressive 69% overall revenue increase, helped in part by short-term performance. So it's safe to say that the company's recent revenue growth has been impressive.

Turning to the outlook, analysts monitoring the company estimate that it is expected to grow 14% annually over the next three years. This figure is expected to significantly exceed the industry-wide annual growth forecast of 9.8%.

With this in mind, it's not hard to see why Spotify Technology's P/S is high compared to its peers. Apparently shareholders aren't keen on parting with something that could have a more prosperous future ahead of it.

What does Spotify Technology's P/S mean for investors?

While we typically caution against reading too much into price-to-sales ratios when making investment decisions, they can reveal a lot about what other market participants think about a company. .

As we expected, a check of analyst forecasts for Spotify Technology reveals that its strong earnings outlook is contributing to its strong P/S. Shareholders seem confident about the company's future earnings, which seems to be supporting the bottom line. Unless this situation changes, stock prices will continue to be strongly supported.

That being said, please be careful Spotify Technology is showing us 1 warning sign In our investment analysis, you need to know:

of course, Profitable companies that have a history of strong revenue growth are generally safer choices..So you might want to see this free A collection of other companies with reasonable P/E ratios and strong earnings growth.

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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.