STAAR Surgical Company (NASDAQ:STAA) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 34% in the last twelve months.

Following the firm bounce in price, STAAR Surgical may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 5.9x, since almost half of all 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 are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

How Has STAAR Surgical Performed Recently?

With revenue growth that's superior to most other companies of late, STAAR Surgical has been doing relatively well. 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.

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 STAAR Surgical's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. Pleasingly, revenue has also lifted 97% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the twelve analysts watching the company. That's shaping up to be materially higher than the 9.5% per annum growth forecast for the broader industry.

With this information, we can see why STAAR Surgical 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 Bottom Line On STAAR Surgical's P/S

The strong share price surge has lead to STAAR Surgical's P/S soaring as well. 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.

We've established that STAAR Surgical 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. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for STAAR Surgical you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.