Viavi Solutions Inc. (NASDAQ:VIAV) shareholders have had their patience rewarded with a 37% share price jump in the last month. The annual gain comes to 147% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, when almost half of the companies in the United States' Communications industry have price-to-sales ratios (or "P/S") below 2x, you may consider Viavi Solutions as a stock not worth researching with its 4.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

What Does Viavi Solutions' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Viavi Solutions has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Keen to find out how analysts think Viavi Solutions' future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Viavi Solutions would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 24% gain to the company's top line. Although, its longer-term performance hasn't been as strong with three-year revenue growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 24% during the coming year according to the seven analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 18%, which is noticeably less attractive.

With this information, we can see why Viavi Solutions is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Viavi Solutions' P/S

The strong share price surge has lead to Viavi Solutions' P/S soaring as well. 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.

Our look into Viavi Solutions shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks.

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.