There's Reason For Concern Over Mobileye Global Inc.'s (NASDAQ:MBLY) Massive 25% Price Jump

Those holding Mobileye Global Inc. (NASDAQ:MBLY) shares would be relieved that the share price has rebounded 25% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. But the last month did very little to improve the 58% share price decline over the last year.

Since its price has surged higher, when almost half of the companies in the United States' Auto Components industry have price-to-sales ratios (or "P/S") below 0.6x, you may consider Mobileye Global as a stock not worth researching with its 7x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Mobileye Global

How Mobileye Global Has Been Performing

With revenue that's retreating more than the industry's average of late, Mobileye Global has been very sluggish. 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.

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

How Is Mobileye Global's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Mobileye Global'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 10%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 30% overall rise in revenue. So we can start by confirming that the company has generally done a good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 19% per annum during the coming three years according to the analysts following the company. With the industry predicted to deliver 36% growth per year, the company is positioned for a weaker revenue result.

With this information, we find it concerning that Mobileye Global is trading at a P/S higher than the industry. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Mobileye Global's P/S?

The strong share price surge has lead to Mobileye Global's P/S soaring as well. 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.

It comes as a surprise to see Mobileye Global trade at such a high P/S given the revenue forecasts look less than stellar. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Mobileye Global that you need to be mindful of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.