MKS Inc.'s (NASDAQ:MKSI) Price Is Right But Growth Is Lacking After Shares Rocket 29%

MKS Inc. (NASDAQ:MKSI) shares have continued their recent momentum with a 29% gain in the last month alone. Looking further back, the 14% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, MKS may still be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 2.3x, since almost half of all companies in the Semiconductor industry in the United States have P/S ratios greater than 4.5x and even P/S higher than 11x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early.

Check out our latest analysis for MKS

How MKS Has Been Performing

With revenue growth that's inferior to most other companies of late, MKS has been relatively sluggish. The P/S ratio is probably low because investors think this lacklustre revenue performance isn't going to get any better. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on MKS.

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

MKS' P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 4.5%. The latest three year period has also seen a 24% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Looking ahead now, revenue is anticipated to climb by 5.1% during the coming year according to the analysts following the company. That's shaping up to be materially lower than the 34% growth forecast for the broader industry.

With this information, we can see why MKS is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

MKS' stock price has surged recently, but its but its P/S still remains modest. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As expected, our analysis of MKS' analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. The company will need a change of fortune to justify the P/S rising higher in the future.

And what about other risks? Every company has them, and we've spotted 1 warning sign for MKS you should know about.

If you're unsure about the strength of MKS' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.