Optimistic Investors Push Lattice Semiconductor Corporation (NASDAQ:LSCC) Shares Up 29% But Growth Is Lacking

Lattice Semiconductor Corporation (NASDAQ:LSCC) shareholders are no doubt pleased to see that the share price has bounced 29% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 22% over that time.

Since its price has surged higher, Lattice Semiconductor may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 15.8x, when you consider almost half of the companies in the Semiconductor industry in the United States have P/S ratios under 3.9x and even P/S lower than 1.6x aren't out of the ordinary. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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View our latest analysis for Lattice Semiconductor

How Has Lattice Semiconductor Performed Recently?

While the industry has experienced revenue growth lately, Lattice Semiconductor's revenue has gone into reverse gear, which is not great. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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Do Revenue Forecasts Match The High P/S Ratio?

Lattice Semiconductor's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 30%. As a result, revenue from three years ago have also fallen 11% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Looking ahead now, revenue is anticipated to climb by 11% during the coming year according to the analysts following the company. That's shaping up to be materially lower than the 35% growth forecast for the broader industry.

In light of this, it's alarming that Lattice Semiconductor's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

The Bottom Line On Lattice Semiconductor's P/S

The strong share price surge has lead to Lattice Semiconductor's P/S soaring as well. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've concluded that Lattice Semiconductor currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Lattice Semiconductor you should know about.

If these risks are making you reconsider your opinion on Lattice 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.