BILL Holdings, Inc. ($BILL) price in tune with revenues

BILL Holdings, Inc. ($BILL) price-to-sales (or "P/S") ratio of 9.7x might make it look like a strong sell right now compared to the Software industry in the United States, where around half of the companies have P/S ratios below 4.4x and even P/S below 2x is quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

How BILL Holdings Has Been Performing

With revenue growth that's superior to most other companies of late, BILL Holdings 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.

Is There Enough Revenue Growth Forecasted For BILL Holdings?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like BILL Holdings to be considered reasonable.

If to review the last year of revenue growth, the company posted a terrific increase of 108%. This great performance means it was also able to deliver immense revenue growth over the last three years. So it can be confirmed that the company has done a tremendous job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 27% per year during the coming three years according to the analysts following the company. With the industry only predicted to deliver 13% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why BILL Holdings' P/S is high relative to its industry peers. Apparently, shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Generally, the preference is to limit the use of the price-to-sales ratio to establish what the market thinks about the overall health of a company.

As suspected, the examination of BILL Holdings' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.