Rigetti Computing, Inc. (NASDAQ:RGTI) Stocks Pounded By 36% But Not Lagging Industry On Growth Or Pricing

To the annoyance of some shareholders, Rigetti Computing, Inc. (NASDAQ:RGTI) shares are down a considerable 36% in the last month, which continues a horrid run for the company. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 18% share price drop.

Even after such a large drop in price, Rigetti Computing may still be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 8.8x, when you consider almost half of the companies in the Semiconductor industry in the United States have P/S ratios under 3.8x and even P/S lower than 1.2x 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.

See our latest analysis for Rigetti Computing

How Rigetti Computing Has Been Performing

Recent times have been advantageous for Rigetti Computing as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. 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 Rigetti Computing's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, Rigetti Computing would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 60% 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 three years should generate growth of 61% per annum as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 27% per annum, which is noticeably less attractive.

With this in mind, it's not hard to understand why Rigetti Computing's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Even after such a strong price drop, Rigetti Computing's P/S still exceeds the industry median significantly. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Rigetti Computing's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. 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 4 warning signs for Rigetti Computing (1 can't be ignored) you should be aware of.

If these risks are making you reconsider your opinion on Rigetti Computing, 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.