Fewer Investors Than Expected Jumping On SemiLEDs Corporation (NASDAQ:LEDS)

With a price-to-sales (or "P/S") ratio of 0.4x SemiLEDs Corporation (NASDAQ:LEDS) may be sending very bullish signals at the moment, given that almost half of all the Semiconductor companies in the United States have P/S ratios greater than 3.9x and even P/S higher than 10x are not unusual. 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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See our latest analysis for SemiLEDs

What Does SemiLEDs' Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, SemiLEDs has been doing very well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the P/S ratio. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on SemiLEDs will help you shine a light on its historical performance.

Is There Any Revenue Growth Forecasted For SemiLEDs?

The only time you'd be truly comfortable seeing a P/S as depressed as SemiLEDs' is when the company's growth is on track to lag the industry decidedly.

Taking a look back first, we see that the company's revenues underwent some rampant growth over the last 12 months. Spectacularly, three year revenue growth has also set the world alight, thanks to the last 12 months of incredible growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

When compared to the industry's one-year growth forecast of 33%, the most recent medium-term revenue trajectory is noticeably more alluring

With this information, we find it odd that SemiLEDs is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From SemiLEDs' P/S?

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're very surprised to see SemiLEDs currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. Potential investors that are sceptical over continued revenue performance may be preventing the P/S ratio from matching previous strong performance. At least price risks look to be very low if recent medium-term revenue trends continue, but investors seem to think future revenue could see a lot of volatility.

You need to take note of risks, for example - SemiLEDs has 3 warning signs (and 1 which shouldn't be ignored) we think you should know about.

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.