Inspire Medical Systems, Inc. (NYSE:INSP) Not Lagging Industry On Growth Or Pricing

With a price-to-sales (or "P/S") ratio of 20.4x Inspire Medical Systems, Inc. (NYSE:INSP) may be sending very bearish signals at the moment, given that almost half of all the Medical Equipment companies in the United States have P/S ratios under 4x and even P/S lower than 1.4x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Inspire Medical Systems

How Has Inspire Medical Systems Performed Recently?

Inspire Medical Systems certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

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

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

Retrospectively, the last year delivered an exceptional 78% gain to the company's top line. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue should grow by 28% per annum over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 9.8% each year, which is noticeably less attractive.

In light of this, it's understandable that Inspire Medical Systems' P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Inspire Medical Systems' P/S

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.

As we suspected, our examination of Inspire Medical Systems' 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Inspire Medical Systems that we have uncovered.

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

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.