The Iridium Communications Inc. (NASDAQ:IRDM) share price has fared very poorly over the last month, falling by a substantial 26%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 12% in that time.

In spite of the heavy fall in price, given close to half the companies operating in the United States' Telecom industry have price-to-sales ratios (or "P/S") below 1.4x, you may still consider Iridium Communications as a stock to potentially avoid with its 3x 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 as high as it is.

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View our latest analysis for Iridium Communications

How Has Iridium Communications Performed Recently?

With revenue growth that's superior to most other companies of late, Iridium Communications has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Iridium Communications .

Is There Enough Revenue Growth Forecasted For Iridium Communications?

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

If we review the last year of revenue growth, the company posted a worthy increase of 5.1%. The latest three year period has also seen an excellent 35% 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.

Turning to the outlook, the next three years should generate growth of 4.7% each year as estimated by the seven analysts watching the company. With the industry predicted to deliver 98% growth each year, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Iridium Communications' P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Final Word

Despite the recent share price weakness, Iridium Communications' P/S remains higher than most other companies in the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

It comes as a surprise to see Iridium Communications trade at such a high P/S given the revenue forecasts look less than stellar. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. At these price levels, investors should remain cautious, particularly if things don't improve.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Iridium Communications (of which 1 makes us a bit uncomfortable!) you should know about.

If these risks are making you reconsider your opinion on Iridium Communications, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.