Despite an already strong run, American Superconductor Corporation (NASDAQ:AMSC) shares have been powering on, with a gain of 30% in the last thirty days. The annual gain comes to 256% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, you could be forgiven for thinking American Superconductor is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 7.9x, considering almost half the companies in the United States' Electrical industry have P/S ratios below 2x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does American Superconductor's Recent Performance Look Like?

American Superconductor certainly has been doing a good job lately as it's been growing revenue more 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.

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered an exceptional 47% gain to the company's top line. The latest three year period has also seen an excellent 80% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 31% as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 23% growth forecast for the broader industry.

In light of this, it's understandable that American Superconductor'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.

The Final Word

Shares in American Superconductor have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 American Superconductor shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

And what about other risks? Every company has them, and we've spotted 3 warning signs for American Superconductor you should know about.

If you're unsure about the strength of American Superconductor'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.