Market Might Still Lack Some Conviction On Lantronix, Inc. (NASDAQ:LTRX) Even After 25% Share Price Boost

Those holding Lantronix, Inc. (NASDAQ:LTRX) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 21% over that time.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Lantronix's P/S ratio of 1x, since the median price-to-sales (or "P/S") ratio for the Communications industry in the United States is about the same. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

Check out our latest analysis for Lantronix

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

Lantronix 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 not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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

How Is Lantronix's Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. Pleasingly, revenue has also lifted 114% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 15% as estimated by the five analysts watching the company. With the industry only predicted to deliver 4.1%, the company is positioned for a stronger revenue result.

In light of this, it's curious that Lantronix's P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

Its shares have lifted substantially and now Lantronix's P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Despite enticing revenue growth figures that outpace the industry, Lantronix's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

You always need to take note of risks, for example - Lantronix has 1 warning sign we think you should be aware of.

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

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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.