Why Investors Shouldn't Be Surprised By Ichor Holdings, Ltd.'s (NASDAQ:ICHR) 25% Share Price Plunge

Explore Ichor Holdings's Fair Values from the Community and select yours

Ichor Holdings, Ltd. (NASDAQ:ICHR) shares have retraced a considerable 25% in the last month, reversing a fair amount of their solid recent performance. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 47% share price drop.

Since its price has dipped substantially, Ichor Holdings may look like a strong buying opportunity at present with its price-to-sales (or "P/S") ratio of 0.6x, considering almost half of all companies in the Semiconductor industry in the United States have P/S ratios greater than 3.9x and even P/S higher than 10x aren't out of the ordinary. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Ichor Holdings

How Ichor Holdings Has Been Performing

With revenue growth that's inferior to most other companies of late, Ichor Holdings has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Keen to find out how analysts think Ichor Holdings' 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 Low P/S?

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

Retrospectively, the last year delivered an exceptional 15% gain to the company's top line. Despite this strong recent growth, it's still struggling to catch up as its three-year revenue frustratingly shrank by 21% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenues over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 6.9% each year over the next three years. With the industry predicted to deliver 23% growth each year, the company is positioned for a weaker revenue result.

With this information, we can see why Ichor Holdings is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What Does Ichor Holdings' P/S Mean For Investors?

Having almost fallen off a cliff, Ichor Holdings' share price has pulled its P/S way down as well. 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.

As expected, our analysis of Ichor Holdings' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor 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.

You always need to take note of risks, for example - Ichor Holdings has 1 warning sign we think you should be aware of.

If these risks are making you reconsider your opinion on Ichor Holdings, 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.