With A 29% Price Drop For CVRx, Inc. (NASDAQ:CVRX) You'll Still Get What You Pay For

CVRx, Inc. (NASDAQ:CVRX) shares have had a horrible month, losing 29% after a relatively good period beforehand. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 44% share price drop.

In spite of the heavy fall in price, CVRx may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 5.9x, since almost half of all companies in the Medical Equipment industry in the United States have P/S ratios under 3.4x and even P/S lower than 1.2x are not unusual. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for CVRx

What Does CVRx's Recent Performance Look Like?

CVRx 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. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think CVRx's future stacks up against the industry? In that case, our free report is a great place to start.

How Is CVRx's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 31% gain to the company's top line. The latest three year period has also seen an excellent 293% 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.

Looking ahead now, revenue is anticipated to climb by 25% per year during the coming three years according to the seven analysts following the company. With the industry only predicted to deliver 9.4% per annum, the company is positioned for a stronger revenue result.

With this information, we can see why CVRx 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 CVRx's P/S

Even after such a strong price drop, CVRx's P/S still exceeds the industry median significantly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that CVRx 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for CVRx that you should be aware of.

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.