NeuroPace, Inc. (NASDAQ:NPCE) Screens Well But There Might Be A Catch

It's not a stretch to say that NeuroPace, Inc.'s (NASDAQ:NPCE) price-to-sales (or "P/S") ratio of 2.9x right now seems quite "middle-of-the-road" for companies in the Medical Equipment industry in the United States, where the median P/S ratio is around 3.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

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. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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.

How Is NeuroPace's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like NeuroPace's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 42% last year. The strong recent performance means it was also able to grow revenue by 63% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 20% each year during the coming three years according to the seven analysts following the company. That's shaping up to be materially higher than the 9.8% per annum growth forecast for the broader industry.

With this information, we find it interesting that NeuroPace is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On NeuroPace's P/S

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.

Despite enticing revenue growth figures that outpace the industry, NeuroPace's P/S isn't quite what we'd expect. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

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

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com