Despite an already strong run, Change Financial Limited (ASX:CCA) shares have been powering on, with a gain of 35% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 26% in the last year.

After such a large jump in price, when almost half of the companies in Australia's Diversified Financial industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider Change Financial as a stock probably not worth researching with its 3.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

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View our latest analysis for Change Financial

What Does Change Financial's Recent Performance Look Like?

Recent times have been advantageous for Change Financial as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Change Financial.

Is There Enough Revenue Growth Forecasted For Change Financial?

In order to justify its P/S ratio, Change Financial would need to produce impressive growth in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 50%. Pleasingly, revenue has also lifted 68% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue growth will be highly resilient over the next year growing by 27%. That would be an excellent outcome when the industry is expected to decline by 26%.

With this information, we can see why Change Financial is trading at such a high P/S compared to the industry. At this time, shareholders aren't keen to offload something that is potentially eyeing a much more prosperous future.

The Final Word

Change Financial shares have taken a big step in a northerly direction, but its P/S is elevated as a result. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we anticipated, our review of Change Financial's analyst forecasts shows that the company's better revenue forecast compared to a turbulent industry is a significant contributor to its high price-to-sales ratio. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. We still remain cautious about the company's ability to keep swimming against the current of the broader industry turmoil. Assuming the company's outlook remains unchanged, the share price is likely to be supported by prospective buyers.

It is also worth noting that we have found 2 warning signs for Change Financial that you need to take into consideration.

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.