Why We're Not Concerned Yet About Mobileye Global Inc.'s (NASDAQ:MBLY) 43% Share Price Plunge

Mobileye Global Inc. (NASDAQ:MBLY) shareholders that were waiting for something to happen have been dealt a blow with a 43% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 59% share price decline.

Although its price has dipped substantially, you could still be forgiven for thinking Mobileye Global is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 7x, considering almost half the companies in the United States' Auto Components industry have P/S ratios below 0.7x. 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

What Does Mobileye Global's Recent Performance Look Like?

Mobileye Global could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. 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.

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.

Is There Enough Revenue Growth Forecasted For Mobileye Global?

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

Retrospectively, the last year delivered a frustrating 4.3% decrease to the company's top line. Still, the latest three year period has seen an excellent 33% overall rise in revenue, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 29% per year as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 17% per annum, which is noticeably less attractive.

In light of this, it's understandable that Mobileye Global's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

A significant share price dive has done very little to deflate Mobileye Global's very lofty P/S. 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 Mobileye Global'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 Mobileye Global is showing 1 warning sign in our investment analysis, you should know about.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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