MaxLinear, Inc. (NASDAQ:MXL) Looks Inexpensive After Falling 26% But Perhaps Not Attractive Enough

Unfortunately for some shareholders, the MaxLinear, Inc. (NASDAQ:MXL) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 43% share price drop.

After such a large drop in price, MaxLinear's price-to-sales (or "P/S") ratio of 2.5x might make it look like a buy right now compared to the Semiconductor industry in the United States, where around half of the companies have P/S ratios above 3.2x and even P/S above 8x are quite common. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for MaxLinear

How Has MaxLinear Performed Recently?

MaxLinear could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. 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 MaxLinear's future stacks up against the industry? In that case, our free report is a great place to start.

How Is MaxLinear's Revenue Growth Trending?

The only time you'd be truly comfortable seeing a P/S as low as MaxLinear's is when the company's growth is on track to lag 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 48%. As a result, revenue from three years ago have also fallen 60% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest revenue should grow by 19% per year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 24% per annum, which is noticeably more attractive.

With this information, we can see why MaxLinear is trading at a P/S lower than the industry. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On MaxLinear's P/S

MaxLinear's recently weak share price has pulled its P/S back below other Semiconductor companies. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As expected, our analysis of MaxLinear's 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. The company will need a change of fortune to justify the P/S rising higher in the future.

We don't want to rain on the parade too much, but we did also find 1 warning sign for MaxLinear that you need to be mindful of.

If these risks are making you reconsider your opinion on MaxLinear, 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.