Why Investors Shouldn't Be Surprised By MaxLinear, Inc.'s (NASDAQ:MXL) 28% Share Price Surge

Despite an already strong run, MaxLinear, Inc. (NASDAQ:MXL) shares have been powering on, with a gain of 28% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 34% over that time.

Even after such a large jump in price, it's still not a stretch to say that MaxLinear's price-to-sales (or "P/S") ratio of 3.6x right now seems quite "middle-of-the-road" compared to the Semiconductor industry in the United States, where the median P/S ratio is around 4.1x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

View our latest analysis for MaxLinear

How MaxLinear Has Been Performing

MaxLinear could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to strengthen positively, which has kept the P/S from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on MaxLinear will help you uncover what's on the horizon.

How Is MaxLinear's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like MaxLinear's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 33% decrease to the company's top line. As a result, revenue from three years ago have also fallen 62% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 28% during the coming year according to the eleven analysts following the company. Meanwhile, the rest of the industry is forecast to expand by 31%, which is not materially different.

In light of this, it's understandable that MaxLinear's P/S sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on while the company is keeping a low profile.

What Does MaxLinear's P/S Mean For Investors?

MaxLinear appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

A MaxLinear's P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Semiconductor industry. At this stage investors feel the potential for an improvement or deterioration in revenue isn't great enough to push P/S in a higher or lower direction. Unless these conditions change, they will continue to support the share price at these levels.

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

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.