SkyWater Technology, Inc.'s (NASDAQ:SKYT) Share Price Is Matching Sentiment Around Its Revenues

SkyWater Technology, Inc.'s (NASDAQ:SKYT) price-to-sales (or "P/S") ratio of 1.7x might make it look like a strong buy right now compared to the Semiconductor industry in the United States, where around half of the companies have P/S ratios above 4.2x and even P/S above 9x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

See our latest analysis for SkyWater Technology

What Does SkyWater Technology's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, SkyWater Technology has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Keen to find out how analysts think SkyWater Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

SkyWater Technology's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Retrospectively, the last year delivered an exceptional 46% gain to the company's top line. The latest three year period has also seen an excellent 108% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should generate growth of 14% as estimated by the five analysts watching the company. That's shaping up to be materially lower than the 43% growth forecast for the broader industry.

With this information, we can see why SkyWater Technology is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Final Word

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 SkyWater Technology's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

You should always think about risks. Case in point, we've spotted 2 warning signs for SkyWater Technology you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.