Trupanion, Inc. (NASDAQ:TRUP) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 141% in the last year.

Following the firm bounce in price, given close to half the companies operating in the United States' Insurance industry have price-to-sales ratios (or "P/S") below 1.1x, you may consider Trupanion as a stock to potentially avoid with its 1.9x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

What Does Trupanion's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Trupanion has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

Want the full picture on analyst estimates for the company? Then our free report on Trupanion will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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

If we review the last year of revenue growth, the company posted a terrific increase of 19%. The latest three year period has also seen an excellent 102% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 8.7% per annum as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 5.4% per year growth forecast for the broader industry.

In light of this, it's understandable that Trupanion's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Trupanion's P/S

Trupanion shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

We've established that Trupanion maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Insurance 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Trupanion with six simple checks.

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.