The ICZOOM Group Inc. (NASDAQ:IZM) share price has done very well over the last month, posting an excellent gain of 475%. The last 30 days were the cherry on top of the stock's 1,941% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, when almost half of the companies in the United States' Electronic industry have price-to-sales ratios (or "P/S") below 1.8x, you may consider ICZOOM Group as a stock probably not worth researching with its 2.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

What Does ICZOOM Group's P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at ICZOOM Group over the last year, which is not ideal at all. One possibility is that the P/S is high because investors think the company will still do enough to outperform the broader industry in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Do Revenue Forecasts Match The High P/S Ratio?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 26%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 30% in total. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 2.9% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why ICZOOM Group is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Bottom Line On ICZOOM Group's P/S

ICZOOM Group's 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.

It's no surprise that ICZOOM Group can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

Plus, you should also learn about these 3 warning signs we've spotted with ICZOOM Group.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.