There Is A Reason Sequans Communications S.A.'s (NYSE:SQNS) Price Is Undemanding
Sequans Communications S.A.'s (NYSE:SQNS) price-to-sales (or "P/S") ratio of 1.8x might make it look like a buy right now compared to the Semiconductor industry in the United States, where around half of the companies have P/S ratios above 3.8x and even P/S above 8x are quite common. 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 Sequans Communications
What Does Sequans Communications' P/S Mean For Shareholders?
With revenue growth that's superior to most other companies of late, Sequans Communications has been doing relatively well. It might be that many expect the strong revenue performance to degrade substantially, which has repressed the share price, and thus the P/S ratio. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.
Keen to find out how analysts think Sequans Communications' future stacks up against the industry? In that case, our free report is a great place to start.
What Are Revenue Growth Metrics Telling Us About The Low P/S?
There's an inherent assumption that a company should underperform the industry for P/S ratios like Sequans Communications' to be considered reasonable.
If we review the last year of revenue growth, the company posted a worthy increase of 12%. This was backed up an excellent period prior to see revenue up by 77% in total over the last three years. So we can start by confirming that the company has done a great job of growing revenues over that time.
Shifting to the future, estimates from the four analysts covering the company suggest revenue growth is heading into negative territory, declining 3.6% over the next year. That's not great when the rest of the industry is expected to grow by 25%.
In light of this, it's understandable that Sequans Communications' 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.
The Final Word
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 Sequans Communications' P/S is on the lower end of the spectrum. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
We don't want to rain on the parade too much, but we did also find 4 warning signs for Sequans Communications (2 shouldn't be ignored!) that you need to be mindful of.
If these risks are making you reconsider your opinion on Sequans Communications, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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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