What happened
Shares of Rover Group(NASDAQ: ROVR) were up 16% as of 10:40 a.m. ET on Wednesday after the company posted strong revenue growth in the second quarter, while management raised its full-year revenue forecast.
So what
The stock is starting to rebound from its steep fall last year amid the company's losses on the bottom line. Revenue remained strong in the second quarter, up 35% year over year.
The strong demand for the company's online pet care services is lifting margins higher. Adjusted EBITDA margin nearly doubled to 18%, compared to 10% in the year-ago quarter.
The strong demand trends allowed management to raise its full-year sales forecast to a range of $222 million to $227 million, representing year-over-year growth of 29% at the midpoint.
It's also seeing strong growth in international markets, with Europe's gross booking value up 59% and Canada's up 34%.
Data by YCharts
Now what
There is a large pool of about 87 million pet households in the U.S., with a similar number in Europe, so revenue growth hasn't been a problem for the company. But with profitability starting to improve, this beaten-down stock might have some legs in the near term.
However, investors should note that the stock is expensive, trading at a forward price-to-earnings ratio of 55 and an above-average price-to-sales multiple of 6.2. The company guided for adjusted EBITDA margin to be about 17% for 2023, which is in line with the second quarter. It will have to sustain a combination of high revenue growth and margins to justify the valuation.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Rover Group. The Motley Fool has a disclosure policy.
