The Market Doesn't Like What It Sees From SkyWater Technology, Inc.'s (NASDAQ:SKYT) Revenues Yet

SkyWater Technology, Inc.'s (NASDAQ:SKYT) price-to-sales (or "P/S") ratio of 1.8x 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 4x and even P/S above 8x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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.

How Is SkyWater Technology's Revenue Growth Trending?

There's an inherent assumption that a company should far underperform the industry for P/S ratios like SkyWater Technology's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 42%. The strong recent performance means it was also able to grow revenue by 69% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 20% during the coming year according to the five analysts following the company. With the industry predicted to deliver 27% growth, the company is positioned for a weaker revenue result.

In light of this, it's understandable that SkyWater Technology's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As expected, our analysis of SkyWater Technology's analyst forecasts confirms that the company's underwhelming revenue outlook is a major contributor to its low P/S. Shareholders' pessimism on the revenue prospects for the company seems to be the main contributor to the depressed P/S. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you settle on your opinion, we've discovered 4 warning signs for SkyWater Technology that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.