Sivers Semiconductors AB (publ)'s (STO:SIVE) P/S Still Appears To Be Reasonable

When close to half the companies in the Semiconductor industry in Sweden have price-to-sales ratios (or "P/S") below 3.1x, you may consider Sivers Semiconductors AB (publ) (STO:SIVE) as a stock to potentially avoid with its 4.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Sivers Semiconductors

What Does Sivers Semiconductors' P/S Mean For Shareholders?

Sivers Semiconductors certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on Sivers Semiconductors will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The High P/S?

The only time you'd be truly comfortable seeing a P/S as high as Sivers Semiconductors' is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered an exceptional 47% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 98% in total over the last three years. 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 one analyst covering the company suggest revenue should grow by 90% per annum over the next three years. That's shaping up to be materially higher than the 12% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Sivers Semiconductors' 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.

What Does Sivers Semiconductors' P/S Mean For Investors?

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.

We've established that Sivers Semiconductors 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. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 2 warning signs for Sivers Semiconductors (1 is a bit concerning!) that you need to take into consideration.

If you're unsure about the strength of Sivers Semiconductors' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.