Market Cool On Neuronetics, Inc.'s (NASDAQ:STIM) Revenues Pushing Shares 29% Lower

Neuronetics, Inc. (NASDAQ:STIM) shares have had a horrible month, losing 29% after a relatively good period beforehand. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 238% in the last twelve months.

Following the heavy fall in price, Neuronetics may be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.9x, considering almost half of all companies in the Medical Equipment industry in the United States have P/S ratios greater than 2.9x and even P/S higher than 8x aren't out of the ordinary. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for Neuronetics

How Neuronetics Has Been Performing

Neuronetics certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Is There Any Revenue Growth Forecasted For Neuronetics?

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

If we review the last year of revenue growth, the company posted a terrific increase of 54%. The strong recent performance means it was also able to grow revenue by 87% in total over the last three years. 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 21% per year during the coming three years according to the three analysts following the company. With the industry only predicted to deliver 9.2% per year, the company is positioned for a stronger revenue result.

In light of this, it's peculiar that Neuronetics' P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Final Word

Neuronetics' P/S has taken a dip along with its share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Neuronetics' analyst forecasts revealed that its superior revenue outlook isn't contributing to its P/S anywhere near as much as we would have predicted. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. At least price risks look to be very low, but investors seem to think future revenues could see a lot of volatility.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Neuronetics (1 is significant!) that you need to be mindful of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.