What You Can Learn From Butterfly Network, Inc.'s (NYSE:BFLY) P/S After Its 37% Share Price Crash

Butterfly Network, Inc. (NYSE:BFLY) shares have had a horrible month, losing 37% 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 126% in the last twelve months.

Although its price has dipped substantially, Butterfly Network may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 8.4x, 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. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Butterfly Network

How Butterfly Network Has Been Performing

With revenue growth that's superior to most other companies of late, Butterfly Network has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. 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.

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.

Taking a look back first, we see that the company grew revenue by an impressive 25% last year. Pleasingly, revenue has also lifted 31% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the three analysts covering the company suggest revenue should grow by 20% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 9.4% each year, which is noticeably less attractive.

In light of this, it's understandable that Butterfly Network's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

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

Even after such a strong price drop, Butterfly Network's P/S still exceeds the industry median significantly. 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 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.

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

If these risks are making you reconsider your opinion on Butterfly Network, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.