Revenues Tell The Story For Butterfly Network, Inc. (NYSE:BFLY) As Its Stock Soars 30%

Despite an already strong run, Butterfly Network, Inc. (NYSE:BFLY) shares have been powering on, with a gain of 30% in the last thirty days. The last month tops off a massive increase of 247% in the last year.

After such a large jump in price, Butterfly Network may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 11.8x, 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

How Butterfly Network Has Been Performing

Recent revenue growth for Butterfly Network has been in line with the industry. One possibility is that the P/S ratio is high because investors think this modest revenue performance will accelerate. If not, then existing shareholders may 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 Butterfly Network.

How Is Butterfly Network's Revenue Growth Trending?

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.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. Revenue has also lifted 29% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 20% over the next year. That's shaping up to be materially higher than the 9.1% growth forecast for the broader industry.

With this information, we can see why Butterfly Network 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.

The Bottom Line On Butterfly Network's P/S

The strong share price surge has lead to Butterfly Network's P/S soaring as well. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Butterfly Network maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Butterfly Network that you need to be mindful of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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

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.