MKS Instruments, Inc. (NASDAQ:MKSI) Not Doing Enough For Some Investors As Its Shares Slump 28%

The MKS Instruments, Inc. (NASDAQ:MKSI) share price has fared very poorly over the last month, falling by a substantial 28%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 39% share price drop.

Even after such a large drop in price, MKS Instruments may still be sending buy signals at present with its price-to-sales (or "P/S") ratio of 1.5x, considering almost half of all companies in the Semiconductor industry in the United States have P/S ratios greater than 3.3x and even P/S higher than 8x aren't out of the ordinary. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

Check out our latest analysis for MKS Instruments

How MKS Instruments Has Been Performing

MKS Instruments could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. 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.

Keen to find out how analysts think MKS Instruments' future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/S ratio, MKS Instruments would need to produce sluggish growth that's trailing the industry.

Retrospectively, the last year delivered virtually the same number to the company's top line as the year before. Regardless, revenue has managed to lift by a handy 22% in aggregate from three years ago, 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.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 7.0% per year over the next three years. With the industry predicted to deliver 23% growth per year, the company is positioned for a weaker revenue result.

With this in consideration, its clear as to why MKS Instruments' P/S is falling short industry peers. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

The southerly movements of MKS Instruments' shares means its P/S is now sitting at a pretty low level. 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 expected, our analysis of MKS Instruments' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 3 warning signs for MKS Instruments (1 makes us a bit uncomfortable!) that you need to take into consideration.

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.