Lifeway Foods, Inc. (NASDAQ:LWAY) shares have had a really impressive month, gaining 42% after a shaky period beforehand. The last month tops off a massive increase of 135% in the last year.

Since its price has surged higher, you could be forgiven for thinking Lifeway Foods is a stock not worth researching with a price-to-sales ratios (or "P/S") of 1.4x, considering almost half the companies in the United States' Food industry have P/S ratios below 0.8x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

What Does Lifeway Foods' Recent Performance Look Like?

Recent times have been advantageous for Lifeway Foods as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

How Is Lifeway Foods' Revenue Growth Trending?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. The latest three year period has also seen an excellent 57% 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 sole analyst covering the company suggest revenue should grow by 12% over the next year. With the industry only predicted to deliver 2.0%, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Lifeway Foods' 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 Bottom Line On Lifeway Foods' P/S

Lifeway Foods' P/S is on the rise since its shares have risen strongly. 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.

As we suspected, our examination of Lifeway Foods' analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Lifeway Foods that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.