Alphawave IP Group plc's (LON:AWE) Stock Retreats 34% But Revenues Haven't Escaped The Attention Of Investors

Alphawave IP Group plc (LON:AWE) shareholders won't be pleased to see that the share price has had a very rough month, dropping 34% and undoing the prior period's positive performance. 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, given close to half the companies operating in the United Kingdom's Semiconductor industry have price-to-sales ratios (or "P/S") below 2.3x, you may still consider Alphawave IP Group as a stock to potentially avoid with its 3.2x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Alphawave IP Group

What Does Alphawave IP Group's P/S Mean For Shareholders?

Recent times have been advantageous for Alphawave IP Group as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Is There Enough Revenue Growth Forecasted For Alphawave IP Group?

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

If we review the last year of revenue growth, the company posted a terrific increase of 74%. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 20% per year as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 15% each year growth forecast for the broader industry.

With this information, we can see why Alphawave IP Group is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Alphawave IP Group's P/S remain high even after its stock plunged. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Alphawave IP Group's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Alphawave IP Group, and understanding them should be part of your investment process.

If you're unsure about the strength of Alphawave IP 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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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.