Valens Semiconductor Ltd. (NYSE:VLN) shares have had a horrible month, losing 28% after a relatively good period beforehand. The recent drop has obliterated the annual return, with the share price now down 7.7% over that longer period.

After such a large drop in price, Valens Semiconductor may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.3x, since almost half of all companies in the Semiconductor industry in the United States have P/S ratios greater than 4.4x and even P/S higher than 11x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

How Has Valens Semiconductor Performed Recently?

While the industry has experienced revenue growth lately, Valens Semiconductor's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

How Is Valens Semiconductor's Revenue Growth Trending?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Valens Semiconductor's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 23%. Regardless, revenue has managed to lift by a handy 30% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 16% as estimated by the three analysts watching the company. With the industry predicted to deliver 41% growth, that's a disappointing outcome.

With this information, we are not surprised that Valens Semiconductor is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

What Does Valens Semiconductor's P/S Mean For Investors?

Valens Semiconductor's recently weak share price has pulled its P/S back below other Semiconductor companies. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Valens Semiconductor's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Valens Semiconductor that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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