NovoCure Limited (NASDAQ:NVCR) looks right on target with a price jump of 84%

The NovoCure Limited (NASDAQ:NVCR) The stock price has performed very well over the last month, recording an excellent increase of 84%. The annual gain is 130% after the recent increase, making investors sit up and take notice.

After such a big jump in price, NovoCure could currently look like a strong seller based on its price-to-sales ratio (or “P/S”) of 5.6 compared to other medical device companies in the United States. where around half of companies have P/E ratios below 3.4x and even P/E ratios below 1.3x are quite common. However, it is not advisable to simply take the P/S at face value, as there may be an explanation as to why it is so high.

Check out our latest analysis for NovoCure

What does NovoCure’s P/E ratio mean for shareholders?

With revenue growth that has outpaced most other companies recently, NovoCure is doing relatively well. The P/E ratio is likely high as investors expect this strong sales performance to continue. If not, existing shareholders may be a little nervous about the sustainability of the share price.

If you want to see what analysts are predicting for the future, you should check out our free Report on NovoCure.

How is NovoCure’s sales growth developing?

There is an inherent assumption that for P/S ratios like NovoCure’s to be considered reasonable, a company should outperform the industry by a wide margin.

If we review the last year of revenue growth, the company recorded a significant increase of 15%. The most recent three-year period also saw a total revenue increase of 5.9%, helped in part by near-term performance. Therefore, it’s fair to say that the company’s revenue growth has been respectable recently.

As for the outlook, the eight analysts covering the company are expected to generate annual growth of 11% over the next three years. This is likely to be well above the growth forecast of 9.2% per year for the entire industry.

With this in mind, it’s understandable that NovoCure’s P/E ratio is higher than most other companies. It seems that most investors are expecting this strong future growth and are willing to pay more for the stock.

The key takeaway

NovoCure’s P/E ratio has increased nicely over the last month thanks to a significant increase in its share price. Generally, we limit our use of the price-to-sales ratio to determining what the market thinks about the overall health of a company.

Our look at NovoCure shows that the P/E ratio remains high due to strong future sales. It appears that shareholders are confident in the company’s future earnings, which supports the P/E ratio. Under these circumstances, it’s hard to imagine the share price falling sharply in the near future.

It’s also worth noting what we found 2 warning signs for NovoCure (1 doesn’t suit us so well!) that you need to take into account.

If yes uncertain about the strength of NovoCure’s businessExplore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.