There's Reason For Concern Over indie Semiconductor, Inc.'s (NASDAQ:INDI) Massive 55% Price Jump

indie Semiconductor, Inc. (NASDAQ:INDI) shares have had a really impressive month, gaining 55% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 25% 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 4.3x is worth a mention when the median P/S in the United States' Semiconductor industry is similar at about 4.2x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

View our latest analysis for indie Semiconductor

What Does indie Semiconductor's P/S Mean For Shareholders?

Recent times haven't been great for indie Semiconductor as its revenue has been rising slower than most other companies. It might be that many expect the uninspiring revenue performance to strengthen positively, which has kept the P/S ratio from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on indie Semiconductor.

How Is indie Semiconductor's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like indie Semiconductor's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 23% last year. This great performance means it was also able to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 23% over the next year. Meanwhile, the rest of the industry is forecast to expand by 40%, which is noticeably more attractive.

With this information, we find it interesting that indie Semiconductor is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Key Takeaway

indie Semiconductor appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in 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. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you take the next step, you should know about the 3 warning signs for indie Semiconductor (1 shouldn't be ignored!) that we have uncovered.

If these risks are making you reconsider your opinion on indie Semiconductor, 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.