Despite an already strong run, AeroVironment, Inc. (NASDAQ:AVAV) shares have been powering on, with a gain of 27% in the last thirty days. The last 30 days bring the annual gain to a very sharp 89%.

After such a large jump in price, when almost half of the companies in the United States' Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 2.3x, you may consider AeroVironment as a stock not worth researching with its 8.2x 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 so lofty.

What Does AeroVironment's Recent Performance Look Like?

AeroVironment certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For AeroVironment?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like AeroVironment's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 29%. The latest three year period has also seen an excellent 85% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 15% per year during the coming three years according to the six analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 3.0% per year, which is noticeably less attractive.

In light of this, it's understandable that AeroVironment's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Shares in AeroVironment have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Our look into AeroVironment shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for AeroVironment you should know about.

If you're unsure about the strength of AeroVironment's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.