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 2.9x, PROCEPT BioRobotics Corporation (NASDAQ:PRCT) looks to be giving off strong sell signals with its 18x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

How PROCEPT BioRobotics Has Been Performing

PROCEPT BioRobotics certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is PROCEPT BioRobotics' Revenue Growth Trending?

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

Taking a look back first, we see that the company grew revenue by an impressive 74% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 36% per year during the coming three years according to the eight analysts following the company. With the industry only predicted to deliver 9.5% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why PROCEPT BioRobotics' P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On PROCEPT BioRobotics' P/S

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our look into PROCEPT BioRobotics 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 the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you take the next step, you should know about the 2 warning signs for PROCEPT BioRobotics that we have uncovered.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.