Lacklustre Performance Is Driving Alpha and Omega Semiconductor Limited's (NASDAQ:AOSL) Low P/S

With a price-to-sales (or "P/S") ratio of 0.9x Alpha and Omega Semiconductor Limited (NASDAQ:AOSL) may be sending very bullish signals at the moment, given that almost half of all the Semiconductor companies in the United States have P/S ratios greater than 4.4x and even P/S higher than 10x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Alpha and Omega Semiconductor

How Has Alpha and Omega Semiconductor Performed Recently?

While the industry has experienced revenue growth lately, Alpha and Omega Semiconductor's revenue has gone into reverse gear, which is not great. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. 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.

How Is Alpha and Omega Semiconductor's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like Alpha and Omega Semiconductor's to be considered reasonable.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 19%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 19% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 5.4% during the coming year according to the three analysts following the company. That's shaping up to be materially lower than the 45% growth forecast for the broader industry.

In light of this, it's understandable that Alpha and Omega Semiconductor's P/S sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

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.

As we suspected, our examination of Alpha and Omega Semiconductor's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 2 warning signs for Alpha and Omega Semiconductor (1 is significant!) that we have uncovered.

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

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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.