Market Participants Recognise Nexstim Plc's (HEL:NXTMH) Revenues Pushing Shares 28% Higher

Nexstim Plc (HEL:NXTMH) shares have had a really impressive month, gaining 28% after a shaky period beforehand. The annual gain comes to 243% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, when almost half of the companies in Finland's Medical Equipment industry have price-to-sales ratios (or "P/S") below 5.8x, you may consider Nexstim as a stock not worth researching with its 10x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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Check out our latest analysis for Nexstim

What Does Nexstim's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Nexstim has been doing relatively well. 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.

Want the full picture on analyst estimates for the company? Then our free report on Nexstim will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Nexstim?

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

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Looking ahead now, revenue is anticipated to climb by 24% per annum during the coming three years according to the only analyst following the company. With the industry only predicted to deliver 17% per annum, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Nexstim's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What Does Nexstim's P/S Mean For Investors?

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

Our look into Nexstim shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Having said that, be aware Nexstim is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.