The Price Is Right For PDF Solutions, Inc. (NASDAQ:PDFS)
When you see that almost half of the companies in the Semiconductor industry in the United States have price-to-sales ratios (or "P/S") below 3.4x, PDF Solutions, Inc. (NASDAQ:PDFS) looks to be giving off strong sell signals with its 10.4x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.
View our latest analysis for PDF Solutions
What Does PDF Solutions' P/S Mean For Shareholders?
PDF Solutions certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. However, if this isn't the case, investors might get caught out paying to much for the stock.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on PDF Solutions.
How Is PDF Solutions' Revenue Growth Trending?
There's an inherent assumption that a company should far outperform the industry for P/S ratios like PDF Solutions' to be considered reasonable.
If we review the last year of revenue growth, the company posted a terrific increase of 34%. The latest three year period has also seen an excellent 74% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.
Turning to the outlook, the next year should generate growth of 15% as estimated by the four analysts watching the company. With the industry only predicted to deliver 1.0%, the company is positioned for a stronger revenue result.
With this information, we can see why PDF Solutions 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.
The Bottom Line On PDF Solutions' P/S
Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.
We've established that PDF Solutions 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. It's hard to see the share price falling strongly in the near future under these circumstances.
It is also worth noting that we have found 1 warning sign for PDF Solutions that you need to take into consideration.
If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).
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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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