Revenues Not Telling The Story For Marvell Technology, Inc. (NASDAQ:MRVL) After Shares Rise 29%

Despite an already strong run, Marvell Technology, Inc. (NASDAQ:MRVL) shares have been powering on, with a gain of 29% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 72% in the last year.

Following the firm bounce in price, Marvell Technology may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 15.4x, when you consider almost half of the companies in the Semiconductor industry in the United States have P/S ratios under 4.1x 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.

See our latest analysis for Marvell Technology

What Does Marvell Technology's P/S Mean For Shareholders?

Marvell Technology could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. One possibility is that the P/S ratio is high because investors think this poor revenue performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Marvell Technology's Revenue Growth Trending?

In order to justify its P/S ratio, Marvell Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered a frustrating 5.9% decrease to the company's top line. Even so, admirably revenue has lifted 53% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 23% each year during the coming three years according to the analysts following the company. With the industry predicted to deliver 25% growth per year, the company is positioned for a comparable revenue result.

With this in consideration, we find it intriguing that Marvell Technology's P/S is higher than its industry peers. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What Does Marvell Technology's P/S Mean For Investors?

Shares in Marvell Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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.

Analysts are forecasting Marvell Technology's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. Right now we are uncomfortable with the relatively high share price as the predicted future revenues aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 1 warning sign for Marvell Technology you should be aware of.

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

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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.