There wouldn't be many who think Entegris, Inc.'s (NASDAQ:ENTG) price-to-sales (or "P/S") ratio of 4.9x is worth a mention when the median P/S for the Semiconductor industry in the United States is similar at about 4.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Entegris

How Has Entegris Performed Recently?

With revenue growth that's superior to most other companies of late, Entegris has been doing relatively well. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Entegris would need to produce growth that's similar to the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 23%. The latest three year period has also seen an excellent 107% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the twelve analysts covering the company suggest revenue growth is heading into negative territory, declining 3.8% over the next year. Meanwhile, the broader industry is forecast to expand by 39%, which paints a poor picture.

With this information, we find it concerning that Entegris is trading at a fairly similar P/S compared to the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. 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 negative growth outlook.

The Bottom Line On Entegris' 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.

It appears that Entegris currently trades on a higher than expected P/S for a company whose revenues are forecast to decline. When we see a gloomy outlook like this, our immediate thoughts are that the share price is at risk of declining, negatively impacting P/S. If we consider the revenue outlook, the P/S seems to indicate that potential investors may be paying a premium for the stock.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Entegris (1 is significant!) that you should be aware of before investing here.

If these risks are making you reconsider your opinion on Entegris, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.