Investors Interested In Inspire Medical Systems, Inc.'s (NYSE:INSP) Revenues

When you see that almost half of the companies in the Medical Equipment industry in the United States have price-to-sales ratios (or "P/S") below 2.7x, Inspire Medical Systems, Inc. (NYSE:INSP) looks to be giving off some sell signals with its 4.5x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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Check out our latest analysis for Inspire Medical Systems

How Inspire Medical Systems Has Been Performing

Recent times have been advantageous for Inspire Medical Systems 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

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How Is Inspire Medical Systems' Revenue Growth Trending?

Inspire Medical Systems' P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 27%. The strong recent performance means it was also able to grow revenue by 220% 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 17% per year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 10.0% per year, which is noticeably less attractive.

With this information, we can see why Inspire Medical Systems is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Inspire Medical Systems' P/S?

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.

Our look into Inspire Medical Systems 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.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Inspire Medical Systems with six simple checks.

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.

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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.