After Leaping 27% BrainsWay Ltd. (TLV:BWAY) Shares Are Not Flying Under The Radar

BrainsWay Ltd. (TLV:BWAY) shares have continued their recent momentum with a 27% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 72% in the last year.

After such a large jump in price, BrainsWay may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 6.2x, since almost half of all companies in the Medical Equipment in Israel have P/S ratios under 4.3x and even P/S lower than 1.4x are not unusual. 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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See our latest analysis for BrainsWay

How BrainsWay Has Been Performing

With revenue growth that's superior to most other companies of late, BrainsWay 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.

Keen to find out how analysts think BrainsWay's 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?

The only time you'd be truly comfortable seeing a P/S as high as BrainsWay's is when the company's growth is on track to outshine the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 26%. The latest three year period has also seen an excellent 42% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 23% as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 16% growth forecast for the broader industry.

In light of this, it's understandable that BrainsWay's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

The large bounce in BrainsWay's shares has lifted the company's P/S handsomely. 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.

We've established that BrainsWay maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for BrainsWay with six simple checks will allow you to discover any risks that could be an issue.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.