Even With A 34% Surge, Cautious Investors Are Not Rewarding SemiLEDs Corporation's (NASDAQ:LEDS) Performance Completely

SemiLEDs Corporation (NASDAQ:LEDS) shares have continued their recent momentum with a 34% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 82% in the last year.

In spite of the firm bounce in price, SemiLEDs' price-to-sales (or "P/S") ratio of 1.6x might still make it look like a strong buy right now compared to the wider Semiconductor industry in the United States, where around half of the companies have P/S ratios above 4x and even P/S above 10x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

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View our latest analysis for SemiLEDs

How Has SemiLEDs Performed Recently?

With revenue growth that's exceedingly strong of late, SemiLEDs has been doing very well. Perhaps the market is expecting future revenue performance to dwindle, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Although there are no analyst estimates available for SemiLEDs, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

SemiLEDs' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered an exceptional 161% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 129% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to deliver 35% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised revenue results.

With this information, we find it odd that SemiLEDs is trading at a P/S lower than the industry. It may be that most investors are not convinced the company can maintain recent growth rates.

The Final Word

Even after such a strong price move, SemiLEDs' P/S still trails the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

The fact that SemiLEDs currently trades at a low P/S relative to the industry is unexpected considering its recent three-year growth is in line with the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching the company's performance. medium-term

You should always think about risks. Case in point, we've spotted 3 warning signs for SemiLEDs you should be aware of, and 1 of them is a bit unpleasant.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.