With A 28% Price Drop For Butterfly Network, Inc. (NYSE:BFLY) You'll Still Get What You Pay For

Butterfly Network, Inc. (NYSE:BFLY) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 61% in the last year.

Even after such a large drop in price, when almost half of the companies in the United States' Medical Equipment industry have price-to-sales ratios (or "P/S") below 2.7x, you may still consider Butterfly Network as a stock not worth researching with its 5.4x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Butterfly Network

How Butterfly Network Has Been Performing

Recent times have been advantageous for Butterfly Network as its revenues have been rising faster than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Butterfly Network will help you uncover what's on the horizon.

How Is Butterfly Network's Revenue Growth Trending?

In order to justify its P/S ratio, Butterfly Network would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 26%. The strong recent performance means it was also able to grow revenue by 30% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 21% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 9.5% 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.

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. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Butterfly Network's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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.

Before you take the next step, you should know about the 3 warning signs for Butterfly Network that we have uncovered.

If you're unsure about the strength of Butterfly Network's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.