Grindr Inc.'s (NYSE:GRND) Stock Retreats 26% But Revenues Haven't Escaped The Attention Of Investors

Unfortunately for some shareholders, the Grindr Inc. (NYSE:GRND) share price has dived 26% in the last thirty days, prolonging recent pain. Still, a bad month hasn't completely ruined the past year with the stock gaining 36%, which is great even in a bull market.

In spite of the heavy fall in price, you could still be forgiven for thinking Grindr is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 8.1x, considering almost half the companies in the United States' Interactive Media and Services industry have P/S ratios below 1.2x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

View our latest analysis for Grindr

How Has Grindr Performed Recently?

With revenue growth that's superior to most other companies of late, Grindr has been doing relatively well. 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.

How Is Grindr's Revenue Growth Trending?

In order to justify its P/S ratio, Grindr would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 28% last year. The latest three year period has also seen an excellent 122% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 22% each year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 13% each year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Grindr'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 Final Word

Grindr's shares may have suffered, but its P/S remains high. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Grindr's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Grindr is showing 1 warning sign in our investment analysis, you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.