Despite an already strong run, AudioEye, Inc. (NASDAQ:AEYE) shares have been powering on, with a gain of 55% in the last thirty days. The last 30 days were the cherry on top of the stock's 417% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, AudioEye's price-to-sales (or "P/S") ratio of 10.1x might make it look like a strong sell right now compared to other companies in the Software industry in the United States, where around half of the companies have P/S ratios below 4.6x and even P/S below 1.7x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

How AudioEye Has Been Performing

AudioEye could be doing better as it's been growing revenue less than most other companies lately. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.

How Is AudioEye's Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 3.9% last year. The latest three year period has also seen an excellent 42% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 17% during the coming year according to the four analysts following the company. That's shaping up to be materially higher than the 14% growth forecast for the broader industry.

In light of this, it's understandable that AudioEye'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 AudioEye's P/S?

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

We've established that AudioEye maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Software industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for AudioEye (1 is potentially serious) you should be aware of.

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

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