Despite an already strong run, VerifyMe, Inc. (NASDAQ:VRME) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 34%.

In spite of the firm bounce in price, VerifyMe's price-to-sales (or "P/S") ratio of 0.8x might still make it look like a buy right now compared to the Electronic industry in the United States, where around half of the companies have P/S ratios above 1.7x and even P/S above 5x 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 limited.

How Has VerifyMe Performed Recently?

Recent times have been pleasing for VerifyMe as its revenue has risen in spite of the industry's average revenue going into reverse. One possibility is that the P/S ratio is low because investors think the company's revenue is going to fall away like everyone else's soon. Those who are bullish on VerifyMe will be hoping that this isn't the case and the company continues to beat out the industry.

How Is VerifyMe's Revenue Growth Trending?

In order to justify its P/S ratio, VerifyMe would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. The latest three year period has seen an incredible overall rise in revenue, in spite of this mediocre revenue growth of late. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Looking ahead now, revenue is anticipated to climb by 13% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 5.8% growth forecast for the broader industry.

With this information, we find it odd that VerifyMe is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

VerifyMe's stock price has surged recently, but its but its P/S still remains modest. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

A look at VerifyMe's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. While the possibility of the share price plunging seems unlikely due to the high growth forecasted for the company, the market does appear to have some hesitation.

It is also worth noting that we have found 4 warning signs for VerifyMe that you need to take into consideration.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.