Credo Technology Group Holding Ltd (NASDAQ:CRDO) Looks Just Right With A 42% Price Jump

Credo Technology Group Holding Ltd (NASDAQ:CRDO) shares have continued their recent momentum with a 42% gain in the last month alone. This latest share price bounce rounds out a remarkable 443% gain over the last twelve months.

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 46.8x, when you consider almost half of the companies in the Semiconductor industry in the United States have P/S ratios under 4.7x and even P/S lower than 2x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Credo Technology Group Holding

What Does Credo Technology Group Holding's P/S Mean For Shareholders?

Credo Technology Group Holding certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Credo Technology Group Holding will help you uncover what's on the horizon.

How Is Credo Technology Group Holding's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as steep as Credo Technology Group Holding's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 176% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 40% per annum over the next three years. With the industry only predicted to deliver 24% per year, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Credo Technology Group Holding'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.

What We Can Learn From 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. 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.

Our look into Credo Technology Group Holding shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for Credo Technology Group Holding that you need to take into consideration.

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.