Some Shareholders Feeling Restless Over QuickLogic Corporation's (NASDAQ:QUIK) P/S Ratio

You may think that with a price-to-sales (or "P/S") ratio of 7.2x QuickLogic Corporation (NASDAQ:QUIK) is a stock to avoid completely, seeing as almost half of all the Semiconductor companies in the United States have P/S ratios under 4.6x and even P/S lower than 2x 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.

Check out our latest analysis for QuickLogic

How Has QuickLogic Performed Recently?

QuickLogic could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. 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 QuickLogic's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The High P/S Ratio?

QuickLogic's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Retrospectively, the last year delivered an exceptional 42% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 165% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 28% as estimated by the two analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 40%, which is noticeably more attractive.

In light of this, it's alarming that QuickLogic's P/S sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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 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.

We've concluded that QuickLogic currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. When we see a weak revenue outlook, we suspect the share price faces a much greater risk of declining, bringing back down the P/S figures. At these price levels, investors should remain cautious, particularly if things don't improve.

Before you take the next step, you should know about the 2 warning signs for QuickLogic (1 is concerning!) that we have uncovered.

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com