Those holding Silvaco Group, Inc. (NASDAQ:SVCO) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

Even after such a large jump in price, Silvaco Group's price-to-sales (or "P/S") ratio of 4.3x might still make it look like a buy right now compared to the Software industry in the United States, where around half of the companies have P/S ratios above 5.6x and even P/S above 14x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

What Does Silvaco Group's Recent Performance Look Like?

Recent times haven't been great for Silvaco Group as its revenue has been rising slower than most other companies. The P/S ratio is probably low because investors think this lacklustre 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 Silvaco Group's Revenue Growth Trending?

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

Retrospectively, the last year delivered a decent 5.3% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 29% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing revenue over that time.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 21% per year over the next three years. With the industry predicted to deliver 21% growth per annum, the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that Silvaco Group's P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Silvaco Group's P/S

The latest share price surge wasn't enough to lift Silvaco Group's P/S close to the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've seen that Silvaco Group currently trades on a lower than expected P/S since its forecast growth is in line with the wider industry. The low P/S could be an indication that the revenue growth estimates are being questioned by the market. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

Having said that, be aware Silvaco Group is showing 2 warning signs in our investment analysis, you should know about.

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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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.