The Iteris, Inc. (NASDAQ:ITI) share price has done very well over the last month, posting an excellent gain of 54%. The last 30 days bring the annual gain to a very sharp 53%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Iteris' P/S ratio of 1.7x, since the median price-to-sales (or "P/S") ratio for the Electronic industry in the United States is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Has Iteris Performed Recently?

Iteris certainly has been doing a good job lately as its revenue growth has been positive while most other companies have been seeing their revenue go backwards. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. Those who are bullish on Iteris will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

How Is Iteris' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Iteris' to be considered reasonable.

Retrospectively, the last year delivered a decent 5.0% gain to the company's revenues. The latest three year period has also seen an excellent 41% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 12% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 8.9% growth forecast for the broader industry.

In light of this, it's curious that Iteris' P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Iteris' P/S?

Its shares have lifted substantially and now Iteris' P/S is back within range of the industry median. 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.

We've established that Iteris currently trades on a lower than expected P/S since its forecasted revenue growth is higher than the wider industry. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Iteris is showing 2 warning signs in our investment analysis, and 1 of those is concerning.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.