After Leaping 26% Genasys Inc. (NASDAQ:GNSS) Shares Are Not Flying Under The Radar

Despite an already strong run, Genasys Inc. (NASDAQ:GNSS) shares have been powering on, with a gain of 26% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 31% over that time.

Following the firm bounce in price, when almost half of the companies in the United States' Communications industry have price-to-sales ratios (or "P/S") below 2.2x, you may consider Genasys as a stock probably not worth researching with its 3.6x 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.

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See our latest analysis for Genasys

What Does Genasys' Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Genasys has been relatively sluggish. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. 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.

Is There Enough Revenue Growth Forecasted For Genasys?

In order to justify its P/S ratio, Genasys would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a decent 8.9% gain to the company's revenues. However, this wasn't enough as the latest three year period has seen an unpleasant 43% overall drop in revenue. 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 130% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 13% growth forecast for the broader industry.

In light of this, it's understandable that Genasys' P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Genasys' P/S is on the rise since its shares have risen strongly. 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.

As we suspected, our examination of Genasys' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Genasys (1 is a bit unpleasant) you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.