TeraWulf Inc. (NASDAQ:WULF) shares have continued their recent momentum with a 64% gain in the last month alone. This latest share price bounce rounds out a remarkable 574% gain over the last twelve months.

Since its price has surged higher, TeraWulf may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 22.1x, when you consider almost half of the companies in the Software industry in the United States have P/S ratios under 5.4x and even P/S lower than 1.9x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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

Recent times have been advantageous for TeraWulf as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is TeraWulf's Revenue Growth Trending?

TeraWulf's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 131%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 90% during the coming year according to the eight analysts following the company. With the industry only predicted to deliver 25%, the company is positioned for a stronger revenue result.

In light of this, it's understandable that TeraWulf'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.

What We Can Learn From TeraWulf's P/S?

The strong share price surge has lead to TeraWulf'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 TeraWulf's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with TeraWulf, and understanding them should be part of your investment process.

If you're unsure about the strength of TeraWulf'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.