To the annoyance of some shareholders, CVRx, Inc. (NASDAQ:CVRX) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Still, a bad month hasn't completely ruined the past year with the stock gaining 60%, which is great even in a bull market.

Although its price has dipped substantially, CVRx may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 8.4x, since almost half of all companies in the Medical Equipment industry in the United States have P/S ratios under 3.2x and even P/S lower than 1.2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

What Does CVRx's Recent Performance Look Like?

Recent times have been advantageous for CVRx as its revenues have been rising faster 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.

Is There Enough Revenue Growth Forecasted For CVRx?

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

If we review the last year of revenue growth, the company posted a terrific increase of 75%. 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.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 42% per annum over the next three years. That's shaping up to be materially higher than the 10% per annum growth forecast for the broader industry.

With this information, we can see why CVRx is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Even after such a strong price drop, CVRx's P/S still exceeds the industry median significantly. 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.

We've established that CVRx 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.

You should always think about risks. Case in point, we've spotted 2 warning signs for CVRx 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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