Pixelworks, Inc.'s (NASDAQ:PXLW) Low P/S No Reason For Excitement
With a price-to-sales (or "P/S") ratio of 1.1x Pixelworks, Inc. (NASDAQ:PXLW) may be sending very bullish signals at the moment, given that almost half of all the Semiconductor companies in the United States have P/S ratios greater than 3.4x and even P/S higher than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.
See our latest analysis for Pixelworks
How Has Pixelworks Performed Recently?
Recent times have been advantageous for Pixelworks as its revenues have been rising faster than most other companies. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pixelworks.
How Is Pixelworks' Revenue Growth Trending?
Pixelworks' P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.
Retrospectively, the last year delivered an exceptional 27% gain to the company's top line. Still, revenue has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.
Looking ahead now, revenue is anticipated to slump, contracting by 16% during the coming year according to the three analysts following the company. Meanwhile, the broader industry is forecast to expand by 1.0%, which paints a poor picture.
In light of this, it's understandable that Pixelworks' P/S would sit below the majority of other companies. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
What We Can Learn From Pixelworks' 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.
With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Pixelworks' P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Pixelworks' poor outlook justifies its low P/S ratio. Unless there's material change, it's hard to envision a situation where the stock price will rise drastically.
Before you take the next step, you should know about the 5 warning signs for Pixelworks (1 doesn't sit too well with us!) that we have uncovered.
If you're unsure about the strength of Pixelworks' 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.
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