Many Still Looking Away From u-blox Holding AG (VTX:UBXN)

With a median price-to-sales (or "P/S") ratio of close to 1.6x in the Semiconductor industry in Switzerland, you could be forgiven for feeling indifferent about u-blox Holding AG's (VTX:UBXN) P/S ratio of 2x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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See our latest analysis for u-blox Holding

How u-blox Holding Has Been Performing

While the industry has experienced revenue growth lately, u-blox Holding's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. However, if this isn't the case, investors might get caught out paying too much for the stock.

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How Is u-blox Holding's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like u-blox Holding's is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 54%. As a result, revenue from three years ago have also fallen 37% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 19% each year as estimated by the four analysts watching the company. With the industry only predicted to deliver 13% each year, the company is positioned for a stronger revenue result.

With this information, we find it interesting that u-blox Holding is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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.

Looking at u-blox Holding's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. There could be some risks that the market is pricing in, which is preventing the P/S ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

Plus, you should also learn about this 1 warning sign we've spotted with u-blox Holding .

If you're unsure about the strength of u-blox Holding'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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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.