Why Investors Shouldn't Be Surprised By Iteris, Inc.'s (NASDAQ:ITI) 33% Share Price Surge

The Iteris, Inc. (NASDAQ:ITI) share price has done very well over the last month, posting an excellent gain of 33%. Looking back a bit further, it's encouraging to see the stock is up 85% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Iteris' price-to-sales (or "P/S") ratio of 1.4x is worth a mention when the median P/S in the United States' Electronic industry is similar at about 1.8x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

See our latest analysis for Iteris

How Has Iteris Performed Recently?

Iteris certainly has been doing a good job lately as it's been growing revenue more than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

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

Do Revenue Forecasts Match The P/S Ratio?

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

Taking a look back first, we see that the company grew revenue by an impressive 22% last year. The strong recent performance means it was also able to grow revenue by 51% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 7.1% during the coming year according to the four analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 6.9%, which is not materially different.

In light of this, it's understandable that Iteris' P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

The Final Word

Iteris' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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 Iteris' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Electronic industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

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 Iteris with six simple checks.

If these risks are making you reconsider your opinion on Iteris, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.