Why Investors Shouldn't Be Surprised By ClearPoint Neuro, Inc.'s (NASDAQ:CLPT) 84% Share Price Surge

ClearPoint Neuro, Inc. (NASDAQ:CLPT) shares have had a really impressive month, gaining 84% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 71% in the last year.

After such a large jump in price, you could be forgiven for thinking ClearPoint Neuro is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 16.3x, considering almost half the companies in the United States' Medical Equipment industry have P/S ratios below 2.7x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Check out our latest analysis for ClearPoint Neuro

How ClearPoint Neuro Has Been Performing

ClearPoint Neuro certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

How Is ClearPoint Neuro's Revenue Growth Trending?

In order to justify its P/S ratio, ClearPoint Neuro would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. The latest three year period has also seen an excellent 76% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest revenue should grow by 26% over the next year. That's shaping up to be materially higher than the 9.7% growth forecast for the broader industry.

With this information, we can see why ClearPoint Neuro is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On ClearPoint Neuro's P/S

Shares in ClearPoint Neuro have seen a strong upwards swing lately, which has really helped boost its P/S figure. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our look into ClearPoint Neuro 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 these conditions change, they will continue to provide strong support to the share price.

You need to take note of risks, for example - ClearPoint Neuro has 2 warning signs (and 1 which can't be ignored) we think you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.