Optimistic Investors Push VirTra, Inc. (NASDAQ:VTSI) Shares Up 26% But Growth Is Lacking

VirTra, Inc. (NASDAQ:VTSI) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 130% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given close to half the companies operating in the United States' Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 1.9x, you may consider VirTra as a stock to potentially avoid with its 3.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for VirTra

What Does VirTra's P/S Mean For Shareholders?

Recent times have been advantageous for VirTra as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 29% last year. The latest three year period has also seen an excellent 99% overall rise in revenue, aided 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 8.1% as estimated by the dual analysts watching the company. With the industry predicted to deliver 11% growth, the company is positioned for a weaker revenue result.

With this information, we find it concerning that VirTra is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What Does VirTra's P/S Mean For Investors?

The large bounce in VirTra's shares has lifted the company's P/S handsomely. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

It comes as a surprise to see VirTra trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for VirTra that you should be aware of.

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.