Why Investors Shouldn't Be Surprised By Treace Medical Concepts, Inc.'s (NASDAQ:TMCI) 31% Share Price Surge

Treace Medical Concepts, Inc. (NASDAQ:TMCI) shareholders are no doubt pleased to see that the share price has bounced 31% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 49% in the last twelve months.

After such a large jump in price, you could be forgiven for thinking Treace Medical Concepts is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.1x, considering almost half the companies in the United States' Medical Equipment industry have P/S ratios below 3.1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

View our latest analysis for Treace Medical Concepts

How Has Treace Medical Concepts Performed Recently?

Recent times have been advantageous for Treace Medical Concepts as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. 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 Treace Medical Concepts.

Is There Enough Revenue Growth Forecasted For Treace Medical Concepts?

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

If we review the last year of revenue growth, the company posted a terrific increase of 39%. Pleasingly, revenue has also lifted 204% 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.

Turning to the outlook, the next three years should generate growth of 20% per annum as estimated by the seven analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 9.7% per annum, which is noticeably less attractive.

With this information, we can see why Treace Medical Concepts 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.

What Does Treace Medical Concepts' P/S Mean For Investors?

Treace Medical Concepts shares have taken a big step in a northerly direction, but its P/S is elevated as a result. 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.

Our look into Treace Medical Concepts 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

You should always think about risks. Case in point, we've spotted 3 warning signs for Treace Medical Concepts you should be aware 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.