After Leaping 90% NeuroPace, Inc. (NASDAQ:NPCE) Shares Are Not Flying Under The Radar

NeuroPace, Inc. (NASDAQ:NPCE) shares have had a really impressive month, gaining 90% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 44%.

After such a large jump in price, NeuroPace may be sending bearish signals at the moment with its price-to-sales (or "P/S") ratio of 4.7x, since almost half of all companies in the Medical Equipment in the United States have P/S ratios under 3.4x and even P/S lower than 1.3x 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.

View our latest analysis for NeuroPace

What Does NeuroPace's P/S Mean For Shareholders?

Recent times have been advantageous for NeuroPace as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. 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 NeuroPace.

Is There Enough Revenue Growth Forecasted For NeuroPace?

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

Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. Pleasingly, revenue has also lifted 70% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 24% per year over the next three years. With the industry only predicted to deliver 9.2% each year, the company is positioned for a stronger revenue result.

With this information, we can see why NeuroPace 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 Final Word

The large bounce in NeuroPace'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.

Our look into NeuroPace shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with NeuroPace.

If you're unsure about the strength of NeuroPace's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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.