MaxLinear, Inc.'s (NASDAQ:MXL) Popularity With Investors Under Threat As Stock Sinks 26%

MaxLinear, Inc. (NASDAQ:MXL) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 17% in that time.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about MaxLinear's P/S ratio of 3.7x, since the median price-to-sales (or "P/S") ratio for the Semiconductor industry in the United States is also close to 4.3x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for MaxLinear

How Has MaxLinear Performed Recently?

MaxLinear 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 might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. However, if this isn't the case, investors might get caught out paying too much for the stock.

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?

MaxLinear's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 48%. This means it has also seen a slide in revenue over the longer-term as revenue is down 60% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 19% per year as estimated by the eleven analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 25% per annum, which is noticeably more attractive.

With this information, we find it interesting that MaxLinear is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Key Takeaway

Following MaxLinear's share price tumble, its P/S is just clinging on to the industry median P/S. 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.

When you consider that MaxLinear's revenue growth estimates are fairly muted compared to the broader industry, it's easy to see why we consider it unexpected to be trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

And what about other risks? Every company has them, and we've spotted 2 warning signs for MaxLinear you should know about.

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.