The Fiverr International Ltd. (NYSE:FVRR) share price has done very well over the last month, posting an excellent gain of 25%. Looking further back, the 23% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Following the firm bounce in price, given close to half the companies operating in the United States' Professional Services industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider Fiverr International as a stock to potentially avoid with its 2.7x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

What Does Fiverr International's Recent Performance Look Like?

Fiverr International could be doing better as it's been growing revenue less than most other companies lately. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Fiverr International's Revenue Growth Trending?

Fiverr International's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered a decent 7.5% gain to the company's revenues. The latest three year period has also seen an excellent 39% overall rise in revenue, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 12% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 6.9% per year, which is noticeably less attractive.

With this in mind, it's not hard to understand why Fiverr International's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Fiverr International's P/S is on the rise since its shares have risen strongly. 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.

Our look into Fiverr International shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Fiverr International with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Fiverr International, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.