Nova Eye Medical Limited's (ASX:EYE) Shares Leap 40% Yet They're Still Not Telling The Full Story

Those holding Nova Eye Medical Limited (ASX:EYE) shares would be relieved that the share price has rebounded 40% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 54% share price drop in the last twelve months.

Even after such a large jump in price, Nova Eye Medical may still look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 1.3x, considering almost half of all companies in the Medical Equipment industry in Australia have P/S ratios greater than 3.4x and even P/S higher than 9x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Nova Eye Medical

How Nova Eye Medical Has Been Performing

With revenue growth that's superior to most other companies of late, Nova Eye Medical has been doing relatively well. One possibility is that the P/S ratio is low because investors think this strong revenue performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Nova Eye Medical?

Nova Eye Medical's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered an exceptional 39% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 99% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 36% during the coming year according to the two analysts following the company. With the industry only predicted to deliver 17%, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Nova Eye Medical's P/S sits behind most of its industry peers. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

Shares in Nova Eye Medical have risen appreciably however, its P/S is still subdued. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

A look at Nova Eye Medical's revenues reveals that, despite glowing future growth forecasts, its P/S is much lower than we'd expect. There could be some major risk factors that are placing downward pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

Before you take the next step, you should know about the 2 warning signs for Nova Eye Medical that we have uncovered.

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

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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.