Investors Appear Satisfied With Credo Technology Group Holding Ltd's (NASDAQ:CRDO) Prospects As Shares Rocket 75%

Credo Technology Group Holding Ltd (NASDAQ:CRDO) shares have continued their recent momentum with a 75% gain in the last month alone. The annual gain comes to 278% following the latest surge, making investors sit up and take notice.

After such a large jump in price, Credo Technology Group Holding may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 47.8x, since almost half of all companies in the Semiconductor industry in the United States have P/S ratios under 4x and even P/S lower than 1.7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out 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. One possibility is that the P/S ratio is high because investors think this lacklustre revenue performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Credo Technology Group Holding.

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.

If we review the last year of revenue growth, the company posted a terrific increase of 48%. Pleasingly, revenue has also lifted 249% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 50% per annum over the next three years. With the industry only predicted to deliver 25% each 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. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in Credo Technology Group Holding have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

We've established that Credo Technology Group Holding maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Semiconductor industry, as expected. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Credo Technology Group Holding that you should be aware of.

If these risks are making you reconsider your opinion on Credo Technology Group Holding, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.