Revenues Not Telling The Story For Arteris, Inc. (NASDAQ:AIP) After Shares Rise 48%

Arteris, Inc. (NASDAQ:AIP) shareholders would be excited to see that the share price has had a great month, posting a 48% gain and recovering from prior weakness. The last month tops off a massive increase of 101% in the last year.

After such a large jump in price, Arteris may be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 9.7x, since almost half of all companies in the Software industry in the United States have P/S ratios under 5.5x and even P/S lower than 2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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Check out our latest analysis for Arteris

What Does Arteris' Recent Performance Look Like?

Recent revenue growth for Arteris has been in line with the industry. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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Is There Enough Revenue Growth Forecasted For Arteris?

Arteris' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 19%. The strong recent performance means it was also able to grow revenue by 35% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next year should generate growth of 17% as estimated by the four analysts watching the company. Meanwhile, the rest of the industry is forecast to expand by 21%, which is noticeably more attractive.

With this in consideration, we believe it doesn't make sense that Arteris' P/S is outpacing its industry peers. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

What We Can Learn From Arteris' P/S?

The strong share price surge has lead to Arteris' P/S soaring as well. 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.

It comes as a surprise to see Arteris trade at such a high P/S given the revenue forecasts look less than stellar. Right now we aren't comfortable with the high P/S as the predicted future revenues aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 4 warning signs for Arteris (1 is a bit unpleasant!) that we have uncovered.

If you're unsure about the strength of Arteris' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.