With a price-to-sales (or "P/S") ratio of 5.8x Silicon Laboratories Inc. (NASDAQ:SLAB) may be sending bearish signals at the moment, given that almost half of all Semiconductor companies in the United States have P/S ratios under 4x and even P/S lower than 1.6x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.
NasdaqGS:SLAB Price to Sales Ratio vs Industry August 15th 2024
How Silicon Laboratories Has Been Performing
While the industry has experienced revenue growth lately, Silicon Laboratories' revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
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Is There Enough Revenue Growth Forecasted For Silicon Laboratories?
In order to justify its P/S ratio, Silicon Laboratories would need to produce impressive growth in excess of the industry.
Retrospectively, the last year delivered a frustrating 47% decrease to the company's top line. As a result, revenue from three years ago have also fallen 10% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.
Turning to the outlook, the next three years should generate growth of 30% per annum as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 28% per annum, which is not materially different.
With this in consideration, we find it intriguing that Silicon Laboratories' P/S is higher than its industry peers. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/S falls to levels more in line with the growth outlook.
The Key Takeaway
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.
Analysts are forecasting Silicon Laboratories' revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.
The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Silicon Laboratories with six simple checks.
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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由于Silicon Laboratories Inc. (NASDAQ:SLAB)的市销率为5.8倍,几乎有一半的美国半导体公司的市销率都低于4倍甚至低于1.6倍,因此此时可能会发出看跌信号。但是,仅仅看市销率是不明智的,因为这些高市销率可能有其特定的解释。