nLIGHT, Inc. (NASDAQ:LASR) Looks Just Right With A 30% Price Jump

The nLIGHT, Inc. (NASDAQ:LASR) share price has done very well over the last month, posting an excellent gain of 30%. The annual gain comes to 235% following the latest surge, making investors sit up and take notice.

After such a large jump in price, given around half the companies in the United States' Electronic industry have price-to-sales ratios (or "P/S") below 2.6x, you may consider nLIGHT as a stock to avoid entirely with its 8.1x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for nLIGHT

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

With revenue growth that's inferior to most other companies of late, nLIGHT has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on nLIGHT.

How Is nLIGHT's Revenue Growth Trending?

In order to justify its P/S ratio, nLIGHT would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 12%. However, this wasn't enough as the latest three year period has seen an unpleasant 10% 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 22% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 15%, which is noticeably less attractive.

With this information, we can see why nLIGHT is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On nLIGHT's P/S

The strong share price surge has lead to nLIGHT's P/S soaring as well. 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 nLIGHT's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with nLIGHT.

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.