Alpha and Omega Semiconductor Limited (NASDAQ:AOSL) Surges 37% Yet Its Low P/S Is No Reason For Excitement

The Alpha and Omega Semiconductor Limited (NASDAQ:AOSL) share price has done very well over the last month, posting an excellent gain of 37%. The last month tops off a massive increase of 115% in the last year.

Even after such a large jump in price, Alpha and Omega Semiconductor may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.1x, since almost half of all companies in the Semiconductor industry in the United States have P/S ratios greater than 4x and even P/S higher than 10x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Alpha and Omega Semiconductor

What Does Alpha and Omega Semiconductor's P/S Mean For Shareholders?

Alpha and Omega 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. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Alpha and Omega Semiconductor will help you uncover what's on the horizon.

Do Revenue Forecasts Match The Low P/S Ratio?

Alpha and Omega Semiconductor's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue, the company posted a result that saw barely any deviation from a year ago. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 4.9% drop in revenue. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 5.9% during the coming year according to the three analysts following the company. That's shaping up to be materially lower than the 40% growth forecast for the broader industry.

With this information, we can see why Alpha and Omega Semiconductor is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The latest share price surge wasn't enough to lift Alpha and Omega Semiconductor's P/S close to the industry median. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As expected, our analysis of Alpha and Omega Semiconductor's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Alpha and Omega Semiconductor 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.