Some Confidence Is Lacking In Impinj, Inc.'s (NASDAQ:PI) P/S

With a price-to-sales (or "P/S") ratio of 7.8x Impinj, Inc. (NASDAQ:PI) may be sending very bearish signals at the moment, given that almost half of all the Semiconductor companies in the United States have P/S ratios under 4.4x and even P/S lower than 1.7x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Impinj

How Impinj Has Been Performing

With revenue growth that's superior to most other companies of late, Impinj has been doing relatively well. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. If not, then existing shareholders might 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 Impinj will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Impinj?

The only time you'd be truly comfortable seeing a P/S as steep as Impinj's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 34% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 119% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 17% each year during the coming three years according to the nine analysts following the company. With the industry predicted to deliver 23% growth per annum, the company is positioned for a weaker revenue result.

With this in consideration, we believe it doesn't make sense that Impinj's P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of revenue growth is likely to weigh heavily on the share price eventually.

The Key Takeaway

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Despite analysts forecasting some poorer-than-industry revenue growth figures for Impinj, this doesn't appear to be impacting the P/S in the slightest. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Impinj (1 shouldn't be ignored!) that you should be aware of before investing here.

If you're unsure about the strength of Impinj'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.