There Is A Reason Nevro Corp.'s (NYSE:NVRO) Price Is Undemanding

With a price-to-sales (or "P/S") ratio of 1.7x Nevro Corp. (NYSE:NVRO) may be sending bullish signals at the moment, given that almost half of all the Medical Equipment companies in the United States have P/S ratios greater than 3.2x and even P/S higher than 8x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Nevro

What Does Nevro's Recent Performance Look Like?

Nevro's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Nevro.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Nevro's is when the company's growth is on track to lag the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.0%. Revenue has also lifted 15% 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.

Looking ahead now, revenue is anticipated to climb by 5.9% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 9.8% each year, which is noticeably more attractive.

With this information, we can see why Nevro is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

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 Nevro maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Nevro that you should be aware of.

If you're unsure about the strength of Nevro'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.