The Intchains Group Limited (NASDAQ:ICG) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.

Even after such a large drop in price, Intchains Group's price-to-sales (or "P/S") ratio of 49.8x might still make it look like a strong sell right now compared to other companies in the Semiconductor industry in the United States, where around half of the companies have P/S ratios below 3.9x and even P/S below 1.5x 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.

How Intchains Group Has Been Performing

For instance, Intchains Group's receding revenue in recent times would have to be some food for thought. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Is There Enough Revenue Growth Forecasted For Intchains Group?

The only time you'd be truly comfortable seeing a P/S as steep as Intchains Group's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered a frustrating 89% decrease to the company's top line. However, a few very strong years before that means that it was still able to grow revenue by an impressive 47% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 46% shows it's noticeably less attractive.

With this information, we find it concerning that Intchains Group is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Intchains Group's P/S

A significant share price dive has done very little to deflate Intchains Group's very lofty P/S. 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.

Our examination of Intchains Group revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. Right now we aren't comfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Before you take the next step, you should know about the 1 warning sign for Intchains Group that we have uncovered.

If you're unsure about the strength of Intchains Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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