Slammed 33% Silvaco Group, Inc. (NASDAQ:SVCO) Screens Well Here But There Might Be A Catch

Silvaco Group, Inc. (NASDAQ:SVCO) shareholders won't be pleased to see that the share price has had a very rough month, dropping 33% and undoing the prior period's positive performance. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

After such a large drop in price, Silvaco Group may be sending bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.4x, since almost half of all companies in the Software industry in the United States have P/S ratios greater than 5.7x and even P/S higher than 12x are not unusual. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

Check out our latest analysis for Silvaco Group

How Has Silvaco Group Performed Recently?

With revenue growth that's inferior to most other companies of late, Silvaco Group has been relatively sluggish. It seems that many are expecting the uninspiring revenue performance to persist, which has repressed the growth of the P/S ratio. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

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

Do Revenue Forecasts Match The Low P/S Ratio?

Silvaco Group's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 5.3%. The latest three year period has also seen a 29% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Shifting to the future, estimates from the six analysts covering the company suggest revenue should grow by 21% each year over the next three years. Meanwhile, the rest of the industry is forecast to expand by 20% per year, which is not materially different.

In light of this, it's peculiar that Silvaco Group's P/S sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Silvaco Group's P/S

The southerly movements of Silvaco Group's shares means its P/S is now sitting at a pretty low level. 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.

Our examination of Silvaco Group's revealed that its P/S remains low despite analyst forecasts of revenue growth matching the wider industry. Despite average revenue growth estimates, there could be some unobserved threats keeping the P/S low. Perhaps investors are concerned that the company could underperform against the forecasts over the near term.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Silvaco Group with six simple checks.

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.