SiTime Corporation (NASDAQ:SITM) Looks Just Right With A 27% Price Jump

SiTime Corporation (NASDAQ:SITM) shares have continued their recent momentum with a 27% gain in the last month alone. The last month tops off a massive increase of 100% in the last year.

Since its price has surged higher, SiTime may be sending strong sell signals at present with a price-to-sales (or "P/S") ratio of 28.7x, when you consider almost half of the companies in the Semiconductor industry in the United States have P/S ratios under 4.2x and even P/S lower than 1.7x 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 SiTime

How Has SiTime Performed Recently?

Recent times haven't been great for SiTime as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to undergo a reversal of fortunes, which has elevated the P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

Do Revenue Forecasts Match The High P/S Ratio?

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

Retrospectively, the last year delivered a decent 9.0% gain to the company's revenues. Still, lamentably revenue has fallen 3.5% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 30% per year over the next three years. Meanwhile, the rest of the industry is forecast to only expand by 25% each year, which is noticeably less attractive.

In light of this, it's understandable that SiTime'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 Bottom Line On SiTime's P/S

The strong share price surge has lead to SiTime's P/S soaring as well. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into SiTime 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 these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 3 warning signs for SiTime that we have uncovered.

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