After Leaping 34% Credo Technology Group Holding Ltd (NASDAQ:CRDO) Shares Are Not Flying Under The Radar

Credo Technology Group Holding Ltd (NASDAQ:CRDO) shares have had a really impressive month, gaining 34% after a shaky period beforehand. The last month tops off a massive increase of 143% in the last year.

Following the firm bounce in price, Credo Technology Group Holding may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 29.1x, when you consider almost half of the companies in the Semiconductor industry in the United States have P/S ratios under 4.5x and even P/S lower than 1.8x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

See our latest analysis for Credo Technology Group Holding

How Credo Technology Group Holding Has Been Performing

Recent times haven't been great for Credo Technology Group Holding as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think Credo Technology Group Holding's future stacks up against the industry? In that case, our free report is a great place to start.

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

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

Taking a look back first, we see that the company grew revenue by an impressive 26% last year. Pleasingly, revenue has also lifted 273% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 48% per annum during the coming three years according to the eleven analysts following the company. With the industry only predicted to deliver 25% per year, the company is positioned for a stronger revenue result.

With this in mind, it's not hard to understand why Credo Technology Group Holding's 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.

The Bottom Line On Credo Technology Group Holding's P/S

Shares in Credo Technology Group Holding have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 we suspected, our examination of Credo Technology Group Holding's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Before you settle on your opinion, we've discovered 3 warning signs for Credo Technology Group Holding that you should be aware of.

If you're unsure about the strength of Credo Technology Group Holding'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.