CCC Intelligent Solutions Holdings Inc.'s (NASDAQ:CCCS) price-to-sales (or "P/S") ratio of 5.9x might make it look like a sell right now compared to the Software industry in the United States, where around half of the companies have P/S ratios below 4x and even P/S below 1.6x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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What Does CCC Intelligent Solutions Holdings' P/S Mean For Shareholders?

Recent times haven't been great for CCC Intelligent Solutions Holdings as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think CCC Intelligent Solutions Holdings' future stacks up against the industry? In that case, our free report is a great place to start .

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered a decent 9.1% gain to the company's revenues. Pleasingly, revenue has also lifted 37% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 10% per annum as estimated by the analysts watching the company. With the industry predicted to deliver 15% growth each year, the company is positioned for a weaker revenue result.

With this information, we find it concerning that CCC Intelligent Solutions Holdings is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What Does CCC Intelligent Solutions Holdings' P/S Mean For Investors?

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.

Despite analysts forecasting some poorer-than-industry revenue growth figures for CCC Intelligent Solutions Holdings, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for CCC Intelligent Solutions Holdings with six simple checks.

If you're unsure about the strength of CCC Intelligent Solutions Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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