There's Reason For Concern Over indie Semiconductor, Inc.'s (NASDAQ:INDI) Massive 25% Price Jump

indie Semiconductor, Inc. (NASDAQ:INDI) shares have continued their recent momentum with a 25% gain in the last month alone. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 46% over that time.

Although its price has surged higher, there still wouldn't be many who think indie Semiconductor's price-to-sales (or "P/S") ratio of 3.6x is worth a mention when the median P/S in the United States' Semiconductor industry is similar at about 4.2x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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View our latest analysis for indie Semiconductor

What Does indie Semiconductor's Recent Performance Look Like?

While the industry has experienced revenue growth lately, indie Semiconductor's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is moderate because investors think this poor revenue performance will turn around. 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 indie Semiconductor's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Some Revenue Growth Forecasted For indie Semiconductor?

In order to justify its P/S ratio, indie Semiconductor would need to produce growth that's similar to the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 7.1%. Still, the latest three year period has seen an excellent 251% overall rise in revenue, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 12% as estimated by the six analysts watching the company. That's shaping up to be materially lower than the 31% growth forecast for the broader industry.

With this in mind, we find it intriguing that indie Semiconductor's P/S is closely matching its industry peers. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

indie Semiconductor's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. 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.

Given that indie Semiconductor's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. At present, we aren't confident in the P/S as the predicted future revenues aren't likely to support a more positive sentiment for long. A positive change is needed in order to justify the current price-to-sales ratio.

Before you take the next step, you should know about the 2 warning signs for indie Semiconductor that we have uncovered.

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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.