Investors Holding Back On Spectra7 Microsystems Inc. (CVE:SEV)

Spectra7 Microsystems Inc.'s (CVE:SEV) price-to-sales (or "P/S") ratio of 2.2x might make it look like a buy right now compared to the Semiconductor industry in Canada, where around half of the companies have P/S ratios above 4x and even P/S above 9x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Spectra7 Microsystems

What Does Spectra7 Microsystems' Recent Performance Look Like?

Spectra7 Microsystems certainly has been doing a good job lately as it's been growing revenue more than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Spectra7 Microsystems.

How Is Spectra7 Microsystems' Revenue Growth Trending?

Spectra7 Microsystems' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered an exceptional 77% gain to the company's top line. Pleasingly, revenue has also lifted 265% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 28% over the next year. With the industry predicted to deliver 30% growth , the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that Spectra7 Microsystems' P/S is lagging behind its industry peers. It may be that most investors are not convinced the company can achieve future growth expectations.

What Does Spectra7 Microsystems' P/S Mean For Investors?

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.

Our examination of Spectra7 Microsystems' revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. It appears some are indeed anticipating revenue instability, because these conditions should normally provide more support to the share price.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Spectra7 Microsystems (of which 1 makes us a bit uncomfortable!) you should know about.

If you're unsure about the strength of Spectra7 Microsystems' 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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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.