Genasys Inc. (NASDAQ:GNSS) shares have had a really impressive month, gaining 46% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 8.4% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Genasys is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 3.3x, considering almost half the companies in the United States' Communications industry have P/S ratios below 1x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does Genasys' P/S Mean For Shareholders?

Genasys hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Genasys' Revenue Growth Trending?

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

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 32%. This means it has also seen a slide in revenue over the longer-term as revenue is down 23% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 43% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 4.8% growth forecast for the broader industry.

With this information, we can see why Genasys is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Genasys' P/S

The strong share price surge has lead to Genasys' P/S soaring as well. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Genasys maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Communications industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 2 warning signs for Genasys you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.

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