Aware, Inc. (NASDAQ:AWRE) shareholders would be excited to see that the share price has had a great month, posting a 43% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 76%.

Although its price has surged higher, Aware's price-to-sales (or "P/S") ratio of 2.9x might still make it look like a buy right now compared to the Software industry in the United States, where around half of the companies have P/S ratios above 4.3x and even P/S above 11x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

What Does Aware's Recent Performance Look Like?

Recent times have been quite advantageous for Aware as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

How Is Aware's Revenue Growth Trending?

Aware's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 34% last year. The latest three year period has also seen an excellent 34% 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.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 22% shows it's noticeably less attractive.

In light of this, it's understandable that Aware's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the wider industry.

The Final Word

Despite Aware's share price climbing recently, its P/S still lags most other companies. 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.

In line with expectations, Aware maintains its low P/S on the weakness of its recent three-year growth being lower than the wider industry forecast. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. If recent medium-term revenue trends continue, it's hard to see the share price experience a reversal of fortunes anytime soon.

You should always think about risks. Case in point, we've spotted 1 warning sign for Aware you should be aware of.

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.