Market Participants Recognise Nordic Semiconductor ASA's (OB:NOD) Revenues Pushing Shares 58% Higher

The Nordic Semiconductor ASA (OB:NOD) share price has done very well over the last month, posting an excellent gain of 58%. Looking back a bit further, it's encouraging to see the stock is up 25% in the last year.

Since its price has surged higher, given around half the companies in Norway's Semiconductor industry have price-to-sales ratios (or "P/S") below 2.4x, you may consider Nordic Semiconductor as a stock to avoid entirely with its 5.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Nordic Semiconductor

How Nordic Semiconductor Has Been Performing

Nordic Semiconductor hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Is There Enough Revenue Growth Forecasted For Nordic Semiconductor?

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

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 36%. The last three years don't look nice either as the company has shrunk revenue by 1.3% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 18% each year during the coming three years according to the twelve analysts following 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 Nordic Semiconductor 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 Bottom Line On Nordic Semiconductor's P/S

Shares in Nordic Semiconductor have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

As we suspected, our examination of Nordic Semiconductor'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.

Having said that, be aware Nordic Semiconductor is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Nordic Semiconductor, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.