Treace Medical Concepts, Inc. (NASDAQ:TMCI) shares have continued their recent momentum with a 26% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 28% over that time.

Since its price has surged higher, Treace Medical Concepts may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 5.6x, 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 1.3x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

How Treace Medical Concepts Has Been Performing

Treace Medical Concepts certainly has been doing a good job lately as it's been growing revenue more 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.

How Is Treace Medical Concepts' Revenue Growth Trending?

Treace Medical Concepts' 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.

Retrospectively, the last year delivered an exceptional 39% gain to the company's top line. The latest three year period has also seen an excellent 204% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 23% as estimated by the seven analysts watching the company. That's shaping up to be materially higher than the 8.8% growth forecast for the broader industry.

In light of this, it's understandable that Treace Medical Concepts' 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.

The Final Word

Shares in Treace Medical Concepts have seen a strong upwards swing lately, which has really helped boost its P/S figure. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into Treace Medical Concepts shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Treace Medical Concepts.

If these risks are making you reconsider your opinion on Treace Medical Concepts, 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.