Butterfly Network, Inc. (NYSE:BFLY) Stocks Shoot Up 37% But Its P/S Still Looks Reasonable

Butterfly Network, Inc. (NYSE:BFLY) shares have continued their recent momentum with a 37% gain in the last month alone. The last month tops off a massive increase of 197% in the last year.

Since its price has surged higher, Butterfly Network may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 7.2x, when you consider almost half of the companies in the Medical Equipment industry in the United States have P/S ratios under 3.4x and even P/S lower than 1.2x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Butterfly Network

What Does Butterfly Network's P/S Mean For Shareholders?

Butterfly Network's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

What Are Revenue Growth Metrics Telling Us About The High P/S?

Butterfly Network's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 11%. The solid recent performance means it was also able to grow revenue by 29% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 20% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 9.4% growth forecast for the broader industry.

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

Butterfly Network's P/S has grown nicely over the last month thanks to a handy boost in the share price. 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 Butterfly Network shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Butterfly Network that you should be aware of.

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.