Data Storage Corporation (NASDAQ:DTST) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 238% following the latest surge, making investors sit up and take notice.

Even after such a large jump in price, it's still not a stretch to say that Data Storage's price-to-sales (or "P/S") ratio of 1.6x right now seems quite "middle-of-the-road" compared to the IT industry in the United States, where the median P/S ratio is around 1.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

How Data Storage Has Been Performing

With revenue growth that's inferior to most other companies of late, Data Storage has been relatively sluggish. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

How Is Data Storage's Revenue Growth Trending?

Data Storage's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 4.6%. Pleasingly, revenue has also lifted 168% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 8.2% as estimated by the only analyst watching the company. With the industry predicted to deliver 9.3% growth , the company is positioned for a comparable revenue result.

In light of this, it's understandable that Data Storage's P/S sits in line with the majority of other companies. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

What Does Data Storage's P/S Mean For Investors?

Its shares have lifted substantially and now Data Storage's P/S is back within range of the industry median. 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.

We've seen that Data Storage maintains an adequate P/S seeing as its revenue growth figures match the rest of the industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

It is also worth noting that we have found 2 warning signs for Data Storage that you need to take into consideration.

If you're unsure about the strength of Data Storage'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.