Valens Semiconductor Ltd.'s (NYSE:VLN) P/S Is Still On The Mark Following 29% Share Price Bounce

Valens Semiconductor Ltd. (NYSE:VLN) shares have had a really impressive month, gaining 29% after a shaky period beforehand. Looking further back, the 10% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, you could be forgiven for thinking Valens Semiconductor is a stock not worth researching with a price-to-sales ratios (or "P/S") of 4.8x, considering almost half the companies in the United States' Semiconductor industry have P/S ratios below 3.3x. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

We've discovered 1 warning sign about Valens Semiconductor. View them for free.

See our latest analysis for Valens Semiconductor

What Does Valens Semiconductor's Recent Performance Look Like?

Valens Semiconductor could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Keen to find out how analysts think Valens Semiconductor'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, Valens Semiconductor would need to produce impressive growth in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 31%. The last three years don't look nice either as the company has shrunk revenue by 18% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 27% per annum during the coming three years according to the five analysts following the company. With the industry only predicted to deliver 23% per year, the company is positioned for a stronger revenue result.

With this information, we can see why Valens Semiconductor is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Valens Semiconductor's P/S?

The large bounce in Valens Semiconductor's shares has lifted the company's P/S handsomely. 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.

We've established that Valens Semiconductor maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Semiconductor industry, as expected. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Valens Semiconductor that you should be aware of.

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