NeuroPace, Inc. (NASDAQ:NPCE) Looks Just Right With A 25% Price Jump

Those holding NeuroPace, Inc. (NASDAQ:NPCE) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The last 30 days bring the annual gain to a very sharp 40%.

After such a large jump in price, you could be forgiven for thinking NeuroPace is a stock not worth researching with a price-to-sales ratios (or "P/S") of 3.9x, considering almost half the companies in the United States' Medical Equipment industry have P/S ratios below 2.9x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for NeuroPace

How Has NeuroPace Performed Recently?

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

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

Do Revenue Forecasts Match The High P/S Ratio?

NeuroPace's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. The latest three year period has also seen an excellent 106% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 17% each year during the coming three years according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 9.2% per year, which is noticeably less attractive.

With this in mind, it's not hard to understand why NeuroPace'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 NeuroPace's P/S Mean For Investors?

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.

As we suspected, our examination of NeuroPace's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for NeuroPace with six simple checks will allow you to discover any risks that could be an issue.

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.

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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.