MACOM Technology Solutions Holdings, Inc.'s (NASDAQ:MTSI) price-to-sales (or "P/S") ratio of 10.3x might make it look like a strong sell right now compared to the Semiconductor industry in the United States, where around half of the companies have P/S ratios below 4.2x and even P/S below 1.6x are quite common. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for MACOM Technology Solutions Holdings

What Does MACOM Technology Solutions Holdings' Recent Performance Look Like?

While the industry has experienced revenue growth lately, MACOM Technology Solutions Holdings' revenue has gone into reverse gear, which is not great. Perhaps the market is expecting the poor revenue to reverse, justifying it's current high P/S.. If not, then existing shareholders may be extremely nervous about the viability of the share price.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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.

Retrospectively, the last year delivered a frustrating 3.9% decrease to the company's top line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 22% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 9.2% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 23% each year, which is noticeably more attractive.

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. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

What We Can Learn From MACOM Technology Solutions Holdings' P/S?

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've concluded that MACOM Technology Solutions Holdings currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Plus, you should also learn about these 2 warning signs we've spotted with MACOM Technology Solutions Holdings.

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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