Maxeon Solar Technologies, Ltd.'s (NASDAQ:MAXN) Price Is Right But Growth Is Lacking

With a price-to-sales (or "P/S") ratio of 0.1x Maxeon Solar Technologies, Ltd. (NASDAQ:MAXN) 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 4x and even P/S higher than 9x 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.

View our latest analysis for Maxeon Solar Technologies

What Does Maxeon Solar Technologies' P/S Mean For Shareholders?

Maxeon Solar Technologies hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If you still 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.

Want the full picture on analyst estimates for the company? Then our free report on Maxeon Solar Technologies will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

In order to justify its P/S ratio, Maxeon Solar Technologies would need to produce anemic growth that's substantially trailing 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 34%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 20% as estimated by the four analysts watching the company. With the industry predicted to deliver 41% growth, that's a disappointing outcome.

With this information, we are not surprised that Maxeon Solar Technologies is trading at a P/S lower than the industry. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Maxeon Solar Technologies' analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Maxeon Solar Technologies (3 make us uncomfortable) you should be aware of.

If these risks are making you reconsider your opinion on Maxeon Solar Technologies, 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.