ChromaDex Corporation (NASDAQ:CDXC) shares have continued their recent momentum with a 69% gain in the last month alone. The annual gain comes to 296% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given close to half the companies operating in the United States' Life Sciences industry have price-to-sales ratios (or "P/S") below 3.7x, you may consider ChromaDex as a stock to potentially avoid with its 4.9x 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 ChromaDex's P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, ChromaDex has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

Do Revenue Forecasts Match The High P/S Ratio?

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

Taking a look back first, we see that the company managed to grow revenues by a handy 10.0% last year. The latest three year period has also seen an excellent 41% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the four analysts covering the company suggest revenue should grow by 20% over the next year. That's shaping up to be materially higher than the 5.2% growth forecast for the broader industry.

With this in mind, it's not hard to understand why ChromaDex's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does ChromaDex's P/S Mean For Investors?

ChromaDex's P/S is on the rise since its shares have risen strongly. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into ChromaDex 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

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

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