What You Can Learn From Alphawave IP Group plc's (LON:AWE) P/S After Its 27% Share Price Crash

The Alphawave IP Group plc (LON:AWE) share price has softened a substantial 27% over the previous 30 days, handing back much of the gains the stock has made lately. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 12% in that time.

In spite of the heavy fall in price, when almost half of the companies in the United Kingdom's Semiconductor industry have price-to-sales ratios (or "P/S") below 1.7x, you may still consider Alphawave IP Group as a stock not worth researching with its 4.2x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Alphawave IP Group

How Has Alphawave IP Group Performed Recently?

Recent times haven't been great for Alphawave IP Group as its revenue has been falling quicker than most other companies. It might be that many expect the dismal revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

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

How Is Alphawave IP Group's Revenue Growth Trending?

In order to justify its P/S ratio, Alphawave IP Group would need to produce outstanding growth that's well in excess of the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 29%. In spite of this, the company still managed to deliver immense revenue growth over the last three years. So while the company has done a great job in the past, it's somewhat concerning to see revenue growth decline so harshly.

Looking ahead now, revenue is anticipated to climb by 66% during the coming year according to the three analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 54%, which is noticeably less attractive.

With this in mind, it's not hard to understand why Alphawave IP Group's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Alphawave IP Group's shares may have suffered, but its P/S remains high. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Alphawave IP Group maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Semiconductor industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 2 warning signs for Alphawave IP Group (1 is potentially serious!) that we have uncovered.

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.