Why We're Not Concerned About Navitas Semiconductor Corporation's (NASDAQ:NVTS) Share Price

You may think that with a price-to-sales (or "P/S") ratio of 16.3x Navitas Semiconductor Corporation (NASDAQ:NVTS) is a stock to avoid completely, seeing as almost half of all the Semiconductor companies in the United States have P/S ratios under 4x 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 Navitas Semiconductor

What Does Navitas Semiconductor's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Navitas Semiconductor has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Navitas Semiconductor?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Navitas Semiconductor's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 100% gain to the company's top line. This great performance means it was also able to deliver immense revenue growth over the last three years. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 77% each year during the coming three years according to the nine analysts following the company. With the industry only predicted to deliver 26% per annum, the company is positioned for a stronger revenue result.

In light of this, it's understandable that Navitas Semiconductor's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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.

Our look into Navitas Semiconductor shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Navitas Semiconductor that you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.