Market Cool On Arteris, Inc.'s (NASDAQ:AIP) Revenues Pushing Shares 26% Lower

To the annoyance of some shareholders, Arteris, Inc. (NASDAQ:AIP) shares are down a considerable 26% in the last month, which continues a horrid run for the company. Longer-term shareholders would now have taken a real hit with the stock declining 8.9% in the last year.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Arteris' P/S ratio of 4.1x, since the median price-to-sales (or "P/S") ratio for the Software industry in the United States is also close to 4x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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See our latest analysis for Arteris

How Has Arteris Performed Recently?

Recent times haven't been great for Arteris as its revenue has been rising slower than most other companies. Perhaps the market is expecting future revenue performance to lift, which has kept the P/S from declining. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Want the full picture on analyst estimates for the company? Then our free report on Arteris will help you uncover what's on the horizon.

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

The only time you'd be comfortable seeing a P/S like Arteris' is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a decent 7.6% gain to the company's revenues. The latest three year period has also seen an excellent 52% overall rise in revenue, aided somewhat by its short-term performance. 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 20% each year as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 15% per year growth forecast for the broader industry.

In light of this, it's curious that Arteris' P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Arteris' P/S Mean For Investors?

Following Arteris' share price tumble, its P/S is just clinging on to the industry median P/S. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Despite enticing revenue growth figures that outpace the industry, Arteris' P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. However, if you agree with the analysts' forecasts, you may be able to pick up the stock at an attractive price.

Plus, you should also learn about these 3 warning signs we've spotted with Arteris (including 1 which makes us a bit uncomfortable).

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.