Crexendo, Inc. (NASDAQ:CXDO) shares have had a really impressive month, gaining 44% after a shaky period beforehand. The last month tops off a massive increase of 164% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Crexendo's P/S ratio of 2.1x, since the median price-to-sales (or "P/S") ratio for the IT industry in the United States is also close to 2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

How Has Crexendo Performed Recently?

Recent times have been advantageous for Crexendo as its revenues have been rising faster than most other companies. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

How Is Crexendo's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 31%. The strong recent performance means it was also able to grow revenue by 223% in total over the last three years. 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 9.6% each year during the coming three years according to the four analysts following the company. With the industry predicted to deliver 11% growth each year, the company is positioned for a comparable revenue result.

With this in mind, it makes sense that Crexendo's P/S is closely matching its industry peers. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Key Takeaway

Its shares have lifted substantially and now Crexendo's P/S is back within range of the industry median. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

A Crexendo's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the IT industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

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

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com