Despite an already strong run, ClearPoint Neuro, Inc. (NASDAQ:CLPT) shares have been powering on, with a gain of 28% in the last thirty days. The annual gain comes to 145% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, ClearPoint Neuro may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 12.4x, 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.

What Does ClearPoint Neuro's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, ClearPoint Neuro has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying too much for the stock.

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like ClearPoint Neuro's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 29% gain to the company's top line. The latest three year period has also seen an excellent 91% 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.

Looking ahead now, revenue is anticipated to climb by 25% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 9.0% growth forecast for the broader industry.

With this information, we can see why ClearPoint Neuro 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.

The Key Takeaway

ClearPoint Neuro's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that ClearPoint Neuro maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Medical Equipment industry, as expected. 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 settle on your opinion, we've discovered 3 warning signs for ClearPoint Neuro that you should be aware of.

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.