When close to half the companies in the Semiconductor industry in the United States have price-to-sales ratios (or "P/S") below 2.8x, you may consider MACOM Technology Solutions Holdings, Inc. (NASDAQ:MTSI) as a stock to avoid entirely with its 9.1x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.
View our latest analysis for MACOM Technology Solutions Holdings
What Does MACOM Technology Solutions Holdings' P/S Mean For Shareholders?
Recent times haven't been great for MACOM Technology Solutions Holdings as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. If not, then existing shareholders may be very nervous about the viability of the share price.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on MACOM Technology Solutions Holdings.How Is MACOM Technology Solutions Holdings' Revenue Growth Trending?
MACOM Technology Solutions Holdings' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.
Taking a look back first, we see that the company grew revenue by an impressive 26% last year. The latest three year period has also seen a 28% overall rise in revenue, aided extensively by its short-term performance. So we can start by confirming that the company has actually done a good job of growing revenue over that time.
Turning to the outlook, the next year should generate growth of 21% as estimated by the analysts watching the company. That's shaping up to be materially lower than the 36% growth forecast for the broader industry.
With this in consideration, we believe it doesn't make sense that MACOM Technology Solutions Holdings' P/S is outpacing its industry peers. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.
What Does MACOM Technology Solutions Holdings' P/S Mean For Investors?
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.
Despite analysts forecasting some poorer-than-industry revenue growth figures for MACOM Technology Solutions Holdings, this doesn't appear to be impacting the P/S in the slightest. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with MACOM Technology Solutions Holdings, and understanding should be part of your investment process.
If you're unsure about the strength of MACOM Technology Solutions Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.